PNR Paper

PNR Paper Q2 2017 Review and Highlights

This quarter we started The PNR Paper, a short summary of an important, influential, topical or interesting research paper in the fields of business, management and strategy. The primary goal is to make you learn new things and explore the edge of business, management and strategy. Before doing a recap of what we learned in Q2 2017, here’s some stats.

Articles Recap

Corporate Strategy

  • In A Link Between Corporate Purpose and Financial Performance, the authors found that corporate purpose is not related to financial performance. However, high purpose firms come in different types: high camaraderie and high clarity workplaces. High clarity firms superior financial performance is driven by the middle ranks of the organization.
    Implications: Executives should make sure their expectations are clear and that they communicate their view of where the organization is going and how to get there. In addition, they should make sure that employees feel empowered (decentralization) and that they communicate their purpose to the external stakeholders as well.
  • In Learning from Family-Controlled Businesses, the authors looked at other businesses than what we are used to (large, U.S. publicly traded companies). They found that FCBs outperform their non-family counterparts on return on assets, market valuations, total shareholder returns, return on capital and tend to survive 2 to 3 times longer, because they are managed for the long run. They do that through core principles: Continuity, Community, Connection, and Command.
    Implications: Managers of FCBs think that financial performance will come by itself if the firm deliver on a market-relevant mission. Cooperation is more common than competition in high-performing FCBs. High-performing FCBs focus on win-win long-term relationships with external stakeholders (customers, suppliers and partners). Finally, high-performing FCBs have little hierarchy, a decentralized structure and focus on the performance of the whole rather than micromanaging the parts.
  • In Options for Formulating a Digital Transformation Strategy, the authors explore the different options that are available for businesses when they want to define their digital transformation strategy. This is not an easy task and many organizations are unable to keep pace with the digital reality. The authors define a Digital Transformation Framework (DTF) that is structured around Technology, Value Creation, Structure and Finance.
    Implications: The digital transformation strategy should be integrated in the business strategy. Changes in culture, leadership, processes, products, organizational structures are always fraught with resistance and require a clear agenda to help align everyone on the coordination, prioritization and implementation efforts of a firm’s transformation efforts.
  • In Big Data for Big Business? A Taxonomy of Data-Driven Business Models used by Startups, the authors define a taxonomy of business models used by companies that rely on data as a core resource of their business. The end goal of these businesses is not simply to collect, store and analyze data, but it is to create actual business value. Usually, data creates value by improving and optimizing current business practices and services or by launching new products and business models.
    Implications: Startups have the advantage that they can build their IT systems from scratch and don’t face the challenge of legacy IT systems. However, established companies can use data sources that they already own and that they have produced throughout their history. The availability of potentially valuable data is growing exponentially because of the rise of the Internet, social media, cloud computing and mobile devices. This phenomenon is often referred as big data which is most commonly defined as “high-volume, high-velocity and high-variety information assets that demand cost-effective, innovative forms of information processing for enhanced insight and decision-making” (Gartner, 2012).

Sales and Marketing

  • In When Sales and Marketing Align: Impact on Performance, the authors discovered that firms can generate a high ROI if they decide to put resources on aligning sales and marketing. The study found positive results on the following metrics: 1) growth in numbers of qualified leads; 2) increases in lead conversion rates; 3) growth in new account acquisition; 4) accuracy in sales forecasting; 5) growth in customer retention rates; 6) growth in average account billing size; 7) revenue growth; 8) growth in achievement of sales quotas.
    Implications: Without sales and marketing working to produce revenue, the business ceases to exist. Even though conflicts between marketers and salespeople, VP of Sales/Marketing strive to cultivate better communication, collaboration and mutual understanding between the two groups.
  • In Rethinking the Extraverted Sales Ideal: The Ambivert Advantagethe author refute the widespread assumption that extraverts are the most productive salespeople and that ambiverts are the best salespeople because they are to find the right balance between selling and serving. Ambiverts will switch between listening to understand the customers’ needs and between talking with the appropriate level of enthusiasm and assertiveness to stimulate customer interest and convert it into sales.
    Implications: Managers should consider their own bias when promoting people internally and hiring managers should consider a larger spectrum of personalities when hiring salespeople. They should identify who are the most likely to be ambiverts or who are the potential introverts/extroverts that could be coached.

M&A

  • In To Buy or Not To Buy: A Checklist for Assessing Mergers & Acquisitions, the author conclude that generating value from M&A is challenging. M&A requires payment up front for benefits down the road. Companies tend to overestimate the value of synergies. Competitors can take advantage of the lack of focus as the companies go through the integration process. M&A deals are generally costly to reverse.
    Implications: Companies can generate value by focusing on cost synergies which are more reliable than revenue synergies and by having a clear execution plan to achieve the synergies during the integration. Knowing in which strategic category the deal fall into and choosing the right financing mix is key to determine the success rate of the M&A. Finally buyer should look for a small premium, because when the premium is too large, the buyer will only create value when the synergies it realizes exceed the premium paid.

Economics

  • In Schumpeter’s Ghost: Is Hypercompetition Making the Best of Times Shorter?, the authors found that we live in a hypercompetitive world as the duration of sustained competitive advantage, and superior economic performance have shortened over time, the phenomenon is not limited to specific industries like high technology but applies to a wide range of sectors and managers react to this hyper-competitive by switching from building and sustaining a single advantage over time to a series of short-term advantages that can be concatenated over time.
    Implications: Managers should think about disrupting the status quo, to seize the initiative through creating a series of temporary advantages.
  • In Schumpeterian Profits and the Alchemist Fallacy, the author discovered that innovators are unable to capture a significant part of the value they create. Rather, most of the benefits from innovations are passed on to consumers rather than captured by producers.
    Implications: Given the results of the paper, investors and innovators must not succumb to the alchemist fallacy. Alchemy was an ancient art based on the supposed transformation of matter (i.e. transmuting common metals into gold). The alchemist fallacy is to think that, once a process was found to transform any matter, the transformed matter would retain its scarcity, and the discoverers would be immensely rich. However, the laws of economics are a safer bet as they teach us that if such process was found, the transformed matter would quickly fall as it would become as common and cheap as other matters.

IT Strategy

  • In A Model to Identify Solutions to Legacy Systems Increasing Maintenance Costs, the authors identify the characteristics of legacy systems and explore why they are costly to maintain and support. For older organizations, legacy systems maintenance costs represent a high share of the IT budgets, which makes it critical to assess the state of these systems and to implement appropriate long-term solutions.
    Implications: The authors present a meta-model that helps senior management to make informed decisions by bridging the gap between technical and business issues. Many legacy systems were built in a time when efficiency took precedence over maintainability because of costly computer processing power and storage capacity. Furthermore, system degradation can be caused by poor documentation, version control and architectural decisions which inevitably cause an increase in maintenance costs. It is important to remember that the assessment of legacy systems and the subsequent decisions of what needs to be done must be taken and supported by a broad range of stakeholders (both business and technical).

Miscellaneous

  • In What Makes Good Models and How to Use Them: Metaphors, Models & Theories, the author explained the differences between metaphors, models & theories while explaining what makes good models and how to use them. Theories tell us what something is, they are right when they are right. Models require explanation, they tell us only what something is more or less like. Metaphors are relative descriptions that compare it to something similar, but better understood through theories or real life applications.
    Implications: Managers must be wary of ambitious theories in social sciences. Fitting a wrong model to the only world we know, and then using it to extrapolate or interpolate is dangerous. A successful social science model must have limited scope and must work with simple analogies.