Professor Nicole Biggart presented her research on the topic in her talk “Where Are the Green Buildings?” at a seminar for engineering, sociology and transportation scholars hosted by the UC Davis Energy Efficiency Center in February.
Biggart, who has studied and published on the commercial building industry with Associate Professor Thomas Beamish of the UC Davis Sociology Department, explained that constructing a building requires an interlocking network of players with different timelines and tasks to get the project done. Developers, design firms, construction managers and subcontractors each have decisions to make and deadline to meet in the process. And, most importantly, they all have expectations about the technology and equipment that will be used. This is where industry conventions become critical, Biggart said.
“Everyone involved in a construction project looks for reliability, predictability and established reputations for getting the job done—in other words, they follow conventional practices.” These conventions allow buildings to be completed rapidly and profits realized. “Anything that has the potential to slow the process down, like an unfamiliar technology, is rejected out of hand,” Biggart said.
Buildings are major investments, and part of portfolios that are expected to generate rents for 30 to 50 years. Because developers typically do not occupy the completed building, they do not have a vested interest in whether it is energy efficient. Biggart said the best way to convince the industry to adopt more efficient technologies is through legislation or by lobbying hedge funds to invest in commercial buildings that are energy efficient. “Investor revolt is usually quite effective in getting new standards implemented,” she said.
To group, or not to group: That’s the question for retailers considering the strategy of cooperative buying. Despite lower wholesale prices, retailers may not always benefit from pooling their purchasing power, especially when they are competing with each other, according to Assistant Professor Rachel Chen.
Certainly, Chen says, competition may not be a concern for retailers with similar market bases and operational efficiencies. “Homogeneous retailers should always participate in cooperative buying, even if they are competitors,” Chen explains. “This is consistent with the observation that co-ops members are often of similar sizes and interests.”
In practice, retailers often face the opportunity of group purchase. WorldWide Retailer Exchange, the premier integrated worldwide exchange community, promotes the idea among its members, who are mostly large retailers (e.g., Kroger, Safeway, CVS, Walgreens, etc.). In Europe, purchasing consortia are well established for the retail sector. In the U.S. and Canada, for example, with the majority of furniture coming from overseas, independent retailers who do not get on board with a buying group often find themselves having a hard time surviving.
However, not all retailers are sold on group buying. While this can be explained by coordination efforts or purchase timing required to join in, Chen shows that competition between retailers could also deter cooperation. Her research, believed to be the first that studies group buying in a distribution channel, offers another possible explanation of why some retailers may not join group purchase.
“We found that if the asymmetry level between two retailers is high, cooperation in purchasing can be detrimental to the larger (or more efficient) one,” explains Chen, who recommends that retailers that are different from the competitors should look closely at the competition level and negotiate a relationship that will allow them to benefit from joint purchasing.
Chen teamed up with her visiting Ph.D. student Paolo Roma from University of Palermo, Italy, to research whether cooperative buying always produces benefit for retailers. Their work, “Group Buying of Competing Retailers,” is forthcoming in the journal Production & Operation Management.
High-tech start-ups, especially those in the energy sector and clean tech—and researchers who want to get their ideas out of the lab and into the market—have a valuable new resource for turning their entrepreneurial ideas into profitable realities.
Technology Ventures: From Idea to Enterprise (McGraw-Hill, 2010), by Professor Emeritus Richard Dorf and co-authors Professor Tom Byers of the Stanford Technology Ventures Program and Professor Andrew Nelson of the Lundquist College of Business at University of Oregon is a newly revised, 700-page guide for analyzing opportunities and building new, high-growth enterprises.
The book has won praise from Silicon Valley executives, venture capitalists and veteran entrepreneurs. “Byers, Dorf, and Nelson have given literally every potential entrepreneur a proven blueprint for success,” wrote Scott Kriens, chairman and former CEO of Juniper Networks.
The third edition draws on the latest academic research and practitioner insights. Dorf and his colleagues integrate a clear theoretical framework with action-oriented examples, up-to-date exercises, an expanded, user-friendly index and connected Web content. University technology commercialization is also addressed. “We emphasize clean tech, environmentally friendly products and other sustainable business practices,” explained Dorf.
Renowned Silicon Valley venture capitalist John Doerr, partner at Kleiner Perkins Caufield and Byers, also endorsed the book. "Green technologies could be the biggest opportunity of the 21st century. Technology Ventures is an indispensable guidebook for everyone who cares about new ventures," wrote Doerr.
In an effort to boost employment, promote cleaner, more sustainable sources of energy, and give the U.S. a global competitive advantage, governors across the nation are looking to implement policies that spur clean tech innovation.
In February, Professor Andrew Hargadon, director of the UC Davis Center for Entrepreneurship, participated in “Spurring Business Start-ups and Innovation in Clean Technology,” a National Governors’ Association Center for Best Practices Webcast co-sponsored by the Kauffman Foundation.
Hargadon outlined the two common assumptions about how innovation happens. With the linear model, innovation occurs through research, development and deployment demonstration. In the “great man model” innovation occurs in a single moment and by a single person. “These models,” Hargadon said, “[have] shaped the way governments invest in entrepreneurship and innovation with an eye toward economic growth.” He said both approaches have proven inadequate in fast-tracking wide market adoption of innovative technologies.
Hargadon made the case for the network model. “Innovation is really finding new combinations of old ideas and building a network of people that can find these new combinations,” he said, explaining how Thomas Edison painstakingly stitched together a network of disparate people—university researchers and institutions—that made the light bulb and the whole electricity infrastructure possible.
“[Edison] brought together existing technologies and new research, competing lighting and generator companies, the telegraph industry, investors like J.P. Morgan, and regulators that enabled him to create a business model for electricity,” Hargadon said.
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As an invited presenter, moderator and keynote at conferences and industry events worldwide, Hargadon continues to gain international prominence by challenging industry and investors to rethink innovation and energy efficiency.
In October, Hargadon traveled to Qatar for the Connected Speaker Series hosted by ictQatar (the Supreme Council of Information and Communication Technology). Addressing nearly 300 attendees, Hargadon shared his insights on networked innovation and how it can be applied to energy efficiency and information and communication technology. Before his lecture, Hargadon met with 75 students from Qatar University's School of Engineering, and encouraged them to think of innovation as connecting ideas, as opposed to inventing the "next big thing." He urged the students to expand their social networks and to include those from other fields to increase their chances of being successful innovators.
Hargadon served as a moderator at the “Technology Transactions in the Post-Financial Crisis Economy” symposium sponsored by the UC Davis Law School in March. His next stop: the National Collegiate Inventors and Innovators Alliance in San Francisco, where he discussed entrepreneurship and teaching entrepreneurship programs.
Assistant Professors Greta Hsu and Victor Stango have both received tenure and will be promoted to associate professor effective this summer.
Hsu joined the School in 2004 after earning her Ph.D. in organizational behavior from Stanford University, where she also earned her M.S. in statistics and an M.A. and B.A. in sociology. Her research has examined the impact of critics’ conceptions of quality on producers’ pricing decisions in the wine industry, genre spanning in the U.S. feature film industry, and patterns in perceptions of organizational identity across organizations and organizational roles. Her recent work, “Multiple Category Membership in Markets: An Integrative Theory and Two Empirical Tests,” was published in the American Sociological Review. Hsu is associate editor Management Science and serves on the editorial review boards of Organization Science, Administrative Science Quarterly, and Academy of Management Review. She teaches courses on Organizational Structure and Strategy. “Her teaching has been well received and she has been an active contributor to the School since she arrived,” Dean Currall said in announcing Hsu’s promotion.
Returning to UC Davis where he earned his Ph.D. in economics in 1996, Stango joined the Graduate School of Management two years ago from the Tuck School of Business at Dartmouth College where he was an associate professor. Stango has extensive experience in economic policy as a senior economist at the Federal Reserve Bank of Chicago from 2001-2003 and a continuing role as a consulting economist. He also served as a visiting senior economist at the Federal Reserve Bank of New York in 2004. Most recently, he was named a research economist for the National Bureau of Economic Research. Stango also is an associate editor of the International Journal of Industrial Organization. He teaches the core MBA course “Markets and the Firm.”
Stango’s research interests focus on consumer and firm behavior in banking markets with an emphasis on fostering sound public policy. He has two studies co-authored with Associate Professor Jon Zinman of Dartmouth forthcoming in top-tier journals: “Fuzzy Math, Disclosure Regulation and Credit Market Outcomes: Evidence from Truth in Lending Reform,” in the Review of Financial Studies; and “Exponential Growth Bias and Household Finance,” in the Journal of Finance.
“Victor has been an extraordinarily productive researcher with global visibility and numerous publications in top journals,” Dean Currall said in announcing Stango’s promotion. In December, Stango teamed with UC Davis economics Associate Professor Chris Knittel, on a high-profile study showing that shareholders of the publicly traded sponsors of Tiger Woods collectively lost up to $12 billion in the wake of the infidelity scandal that engulfed the world’s No. 1 golfer
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A spontaneous acceleration problem led Toyota to recall eight million cars globally and suspend sales of several models in November 2009 and in January. To make matters worse, in February Toyota suffered another blow when reports surfaced of faulty brakes on the Prius hybrid. The defects have battered the company’s reputation, resulting in huge losses and sinking consumer confidence.
Professor Prasad Naik and Assistant Professor Olivier Rubel have analyzed how companies and their marketing managers can prepare for a potential product harm crisis—and demonstrated that there is an optimal course of action for incorporating risk into the allocation of marketing resources.
“Product crises are rare, but when they happen they can be devastating to a firm’s brand equity,” explained Rubel. “These should be seen as ‘black swan’ scenarios—always expect the unexpected.”
Using empirical data, Naik and Rubel developed a dynamic model of sales growth that assumes a crisis will occur at random times in the future. Their findings complement theoretical models recommending the best advertising budget decisions that incorporate crisis planning.
“Some marketing scholars argue that companies should spend more money and build brand loyalty before any crisis occurs; this acts as a buffer to declining profits following a crisis,” said Naik. “Others argue that a portion of advertising budgets should be set aside in case a crisis does occur.”
Naik and Rubel’s research supports saving for the rainy day. Using the 2000 Ford Explorer rollover problem as an example, they show that Ford’s baseline sales dropped 65 percent immediately following the crisis, which cost the company $3.5 billion. Ad spend before the crisis was less effective in maintaining sales afterwards, when profits sank. Naik and Rubel said marketing managers and their companies are better served by spending less on building brand loyalty up front and maintaining a reserve for advertising during a post-crisis period. Further, ad spending after a crisis is more effective in building brand interest than before a crisis.
“Managers should set money aside from their marketing budgets to be accessed following a potential product crisis event,” explained Rubel “Think of it as insurance against the possible damage.”
In a March 8, Los Angeles Times article about Toyota’s spontaneous acceleration problems (“Toyota Attacks Claim of Defect Found in Electronics”), Rubel said Toyota’s should concentrate on winning back consumers’ trust. He added, “At this point in time [Toyota] does not want to be in a communications war,” warning that the back and forth in the media will further erode that trust.
Naik has presented their research at the Yale School of Management, University of Virginia’s Darden School of Business and UCLA’s Anderson School of Management.
Having grown steadily over the past three decades, private equity funds worldwide today manage $1 trillion in capital raised from retail, individual and institutional investors. They play an increasingly important role as financial intermediaries in addition to their significant day-to-day involvement as company board members and advisors. Yet relatively little is known about the industrial organization of these various funds.
In fact, the private equity market hit a wall last year. According to Dow Jones, U.S. private equity fund-raising closed out its worst year since 2003, with 331 funds raising $95.8 billion in 2009. That’s down 68% from the $300 billion raised by 508 funds in 2008.
Against this backdrop, Assistant Professor Ayako Yasuda and Professor Andrew Metrick of the Yale School of Management teamed up to identify and differentiae the economic characteristics of private equity sectors as an important indication of how the funds may perform for investors and fund managers.
In “The Economics of Private Equity Funds,” forthcoming in the Review of Financial Studies, Yasuda and Metrick used data from a large investor who considered investing in 238 private equity funds raised between 1993 and 2006. Yasuda and Metrick developed an innovative model that estimates the expected revenues fund managers would obtain as a function of fee and profit sharing rules. They then estimated how revenues vary across sample funds; these revenue variations allowed them to identify differences between types of funds, such as venture capital (VC) and buyout (BO) funds.
“VCs and BOs have similar fund structures, but our data show that their economic models are very different,” Yasuda explained.
One distinguishing feature is scalability. According to Yasuda’s findings, venture capital investments are consolidated into small firms with typical valuation in the tens of millions. Venture capitalists hold investments in high-growth start-ups until they mature to have an exit value of $150– $200 million or more. In contrast, once a buyout fund manager is successful in handling $100 million companies, they may apply those same skills to managing $1 billion companies. In short, venture capitalists add value to small companies while buyout fund managers add value to larger companies, making their funds more scalable. The result: buyout fund managers generally earn more revenue because they are able to build on their experience by increasing the size of their funds faster.
“Successful BO funds grow faster than successful VC funds, meaning that access to the top VC funds is more difficult for investors than access to the top BO funds,” Yasuda said. Her research is a first step in categorizing the differences and bringing to light how these private equity investments function.
Yasuda has presented these findings at the Amsterdam Business School, Cornell University, MIT, Princeton University, Stanford University, Tuck at Dartmouth College, USC and The Wharton School at the University of Pennsylvania. She also has presented on the topic at the Conference on Private Equity at the University of Chicago; the Entrepreneurship, Venture Capital and Initial Public Offerings Conference at Harvard Business School; the National Bureau of Economic Research in Cambridge, Mass.; The Institute for Financial Research’s conference on the Economics of Private Equity Market in Stockholm, the Federal Reserve Bank of San Francisco’s Center for the Study of Innovation and Productivity symposium on private equity; and the European Financial Management Association’s annual meeting in Madrid.