Knowledge at Wharton

With the recent disclosure of wiretapping by the National Security Agency and the booming success of sites like MySpace and Friendster social networking is much in the news today. But serious interest in social networks can also be found among academics consultants and corporations seeking to deepen their knowledge of how companies operate. While organizations have been aware of the power of social networks for some time now researchers at Wharton note that mapping these connections can yield some potent insights about identifying key employees how board members interact within and among companies and how employee relationships can be better understood to improve productivity and the dissemination of ideas.

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When it comes to athletics sports teams have a specific number of team players: A basketball team needs five baseball nine and soccer 11. But when it comes to the workplace there is no hard-and-fast rule to determine the optimal number to have on each team. Should the most productive team have 4.6 members as suggested in a recent magazine article? What about naming five or six individuals to each team which is the number of MBA students chosen each year by Wharton for its learning teams? Is it true that larger teams simply break down reflecting a tendency towards ”social loafing” and loss of coordination? Or is it that the best number of people for a team is driven by the task at hand and by the roles each person plays? Research by Wharton faculty offers some insights.

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On May 25 a federal jury convicted former Enron CEO Kenneth Lay and former Enron president Jeffrey Skilling on conspiracy and fraud charges with sentencing to be decided on September 11. As has been repeatedly noted in press coverage of this trial Enron is the incredible story of a once powerful company done in by a group of top executives whose greed and fraud was breathtaking even by post dot-com standards. But it is by no means the only high-profile criminal trial in recent days nor is it likely to be the last case brought by the government against CEOs who abuse their positions their stockholders their employees and the public trust. Thomas Dunfee chairman of Wharton’s legal studies and business ethics department and an expert on social contracts and the social responsibility of business talked to Knowledge at Wharton’s Mukul Pandya and Robbie Shell about the Enron verdict.

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The cover photograph in the latest copy of The Economist says it all. The May 25 edition has a picture of a bear peeping out of the woods with a headline that asks ”Which Way is Wall Street?” The magazine notes in an editorial that after nearly three years of gains international stock markets tumbled by more than 10% during the past couple of weeks. Emerging markets have been volatile as have markets in Europe. Is this likely to lead to the kind of bearish slump that followed the dot-com bust in the spring of 2001? Or will the volatility pass? Jeremy Siegel a finance professor at Wharton and author of the book The Future for Investors spoke with Knowledge at Wharton’s Mukul Pandya and Robbie Shell about the commodities market the appointment of Henry Paulson as the new Treasury Secretary and the challenges faced by Fed chairman Ben Bernanke among other topics.

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American investors have poured money into foreign stocks in recent years lured by the hope of outsized gains. They have been well rewarded in the past 12 months but in May markets plummeted around the world. Mutual funds investing in foreign stocks for example lost more than 8% in the two weeks ending May 25 although their previous stunning performance left them up nearly 31% for the 12 months ending on that date. The late-May plunge was especially severe in emerging markets. Is this another bubble bursting the way the tech-stock bubble collapsed several years ago? Wharton professors offer their take on the downturn and its implications for nervous investors.

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When Lou Gerstner became chief executive of IBM in the early 1990s Big Blue was on a course to be broken up into smaller companies each responsible for separate IBM business units such as PCs software and the like. But Gerstner concluded the strategy was ”wrong-headed” because it was contrary to the wishes of customers according to Wharton marketing professor George Day. Rather than assemble their computer systems from a variety of vendors customers wanted help putting everything together. So IBM embarked on a multi-year journey to align its organization with the marketplace. For IBM the experiment was successful. But in a forthcoming paper titled ”Aligning the Organization with the Market ” Day reports on a survey that found only mixed results among 347 medium- to large-size firms that attempted customer-focused reorganizations.

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When Severe Acute Respiratory Syndrome (SARS) broke out in Hong Kong in 2003 some media outlets predicted economic calamity for the city. But by one financial measure -- real estate prices -- Hong Kong hardly suffered according to research by Grace Wong a Wharton real estate professor. In two papers titled ”Has SARS Infected the Property Market? Evidence from Hong Kong” and ”Is SARS a Poor Man’s Disease? Socioeconomic Status and Risk Factors for SARS Transmission ” Wong looks at SARS’ impact on real estate values and analyzes the role of income in determining who contracted the disease. Underlying her research is the recognition that in a global economy infectious diseases such as SARS will likely spread farther and faster as people travel all over the world in search of new business opportunities.

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In the late 1980s as part of an effort to beef up its core IT business Andersen Consulting (now Accenture) began to hire specialist strategy consultants from outside the company. These consultants were more experienced than the usual Andersen employees and they were accustomed to ”much more aggressive individual performance incentives” than was the norm among Andersen’s existing IT staff according to Wharton management professor Sarah Kaplan author of a recent paper titled ”Inertia and Incentives: Bridging Organizational Economics and Organizational Theory.” In the paper co-authored with Rebecca Henderson from MIT’s Sloan School of Management the two researchers use Andersen Consulting Kodak and other organizations to study conflict especially with regard to incentive systems that results when companies undergo major change such as adopting new technologies or shifting into new markets.

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With their combination of low fees tax efficiency and simple autopilot investing style index funds seem to have captivated American investors. At the same time however many investors still hold trillions of dollars in high-fee funds despite well-publicized evidence that low-fee alternatives offer higher returns over the long run. ”It struck us that most people just don’t know what mutual fund fees are. So we set out to actually test that ” says Brigitte C. Madrian professor of business and public policy at Wharton. The result is a paper titled ”Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds ” by Madrian Yale professor James J. Choi and Harvard economics professor David Laibson.

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Hospice care occupies a specialized and growing niche in the healthcare economy as a comfort to the dying and their families and a potential cost-saver for Medicare. With baby boomers now hitting their seventh decade hospice is expected to become an even more important part of the healthcare landscape according to Wharton faculty and industry analysts. How profitable are hospice-providers what is their long-term business outlook and what are the unique challenges that hospice companies face given strict government regulation amid increasing demand for their services?

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