Knowledge@wharton

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? See acast.com/privacy for privacy and opt-out information.

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. See acast.com/privacy for privacy and opt-out information.

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. See acast.com/privacy for privacy and opt-out information.

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. See acast.com/privacy for privacy and opt-out information.

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. See acast.com/privacy for privacy and opt-out information.

Lawton Burns is a professor of health care systems and management director of the Wharton Center for Health Management and Economics and author of a new book entitled The Business of Healthcare Innovation. While much has been written about doctors and hospitals government regulations and medical insurance issues Burns’ book looks at an area of healthcare that has not gotten much attention -- the producers of healthcare products ranging from pharmaceuticals and biotechnology to medical devices and information technology. Yet Burns would argue that a focus on the producer side of the healthcare equation is critical -- not just because we are increasingly more reliant on medical technology but also because of the ever escalating costs of advances in these areas. Burns talked to Knowledge at Wharton’s Mukul Pandya and Robbie Shell about the issues raised in his new book. See acast.com/privacy for privacy and opt-out information.

The Pentagon recently invited a group of 43 civilians including Michael Useem director of Wharton’s Center for Leadership and Change Management to witness the management and leadership of its Central Command which is responsible for the wars in Afghanistan and Iraq. Useem and his colleagues -- who included executives private equity investors media commentators and academics -- traveled to the Middle East to observe troops and operations in Kuwait Bahrain and the Arabian Sea. In this report written literally from the frontlines Useem takes ”a look at the execution of American military policy -- not the policy itself -- a subject of continuing and increasingly intense national debate .... From even this brief foray into their world it is evident that the U.S. armed services have built what many private companies strive for: a culture of readiness and commitment cross-service and cross-national integration and pragmatic flexibility.” See acast.com/privacy for privacy and opt-out information.

With this spring’s criminal trial of former Enron executives Ken Lay and Jeffrey Skilling the public was again seeing accounts of Raptors Chewco and Osprey -- some of the shadowy ”special purpose vehicles” the energy company used for improper purposes such as concealing its mushrooming debt. But while much of Enron’s SPV use was illegal most SPVs are proper and they can serve a variety of functions. Many are separate business-financing operations whose transactions do not appear on the parent company’s books. They can be used to create easily traded asset-backed securities that allow their ”sponsor” companies to convert cash flows expected over many years into immediate lump-sum payments according to Wharton finance professor Gary B. Gorton who with colleague Nicholas Souleles has written a paper on the topic titled ”Special Purpose Vehicles and Securitization.” See acast.com/privacy for privacy and opt-out information.

Illegal immigration into the United States has sparked heated debate in Congress roiled the two main political parties and prompted hundreds of thousands of immigrant supporters to take to the streets recently in peaceful demonstrations nationwide. At stake are the lives and livelihoods of as many as 12 million undocumented workers the companies they work for and the job opportunities of millions of low-skill American citizens. The large number of illegal immigrants raises key economic questions: Do illegal immigrants depress wages paid to low-skill workers? Do they take jobs away from Americans? How dependent on undocumented workers is the U.S. economy? Should illegal immigrants be compelled by law to return to their native countries? Or should Congress hammer out legislation that would allow illegal immigrants to pay some type of penalty yet remain in the United States and continue working? See acast.com/privacy for privacy and opt-out information.

Once again proxy season has revealed some eye-popping numbers in executive compensation packages generating heat from shareholders labor organizations and some analysts who contend that the links between CEO pay and performance are frayed. Other experts however suggest that most executives do earn their pay without indulging in mega-option packages or in salaries that keep increasing even as share value declines. At the same time these experts also suggest ways to improve compensation packages to more closely align them with shareholder interests. See acast.com/privacy for privacy and opt-out information.

It’s one of the oldest most fundamental ideas in management theory: that executives should understand how the many distinct functional components of a firm -- production distribution product mix human resources -- interrelate to achieve the proper fit. In recent years however this notion of comprehending the ”part-whole” relationship of the firm fell out of favor as thinkers turned to other concepts -- such as relying on core competencies to attain competitive advantage. Now two professors in Wharton’s management department Daniel A. Levinthal and Nicolaj Siggelkow say it is time to once again address the part-whole concept. Without this systemic way of looking at companies the researchers note firms run the risk of engaging in compartmentalized thinking that can work to their disadvantage. The two scholars have addressed issues related to firm positioning and the part-whole relationship of the firm in a number of papers and articles. See acast.com/privacy for privacy and opt-out information.

When consumers are diagnosed with a medical condition such as high cholesterol or obesity they immediately begin a new regime of brisk walks and a diet of heart-healthy foods right? Not necessarily says Wharton marketing professor Lisa E. Bolton. If those consumers are taking a prescription or over-the-counter drug for their condition they may actually toss back more chips and donuts. Those taking a supplement however may be more likely to eat broccoli and hit the treadmill. In a new research paper Bolton Wharton marketing professor Americus Reed II and Penn medical school professors Kevin G. Volpp and Katrina Armstrong look at how consumer perceptions of supplements and prescription drugs can affect risk perceptions and intentions to diet and exercise. See acast.com/privacy for privacy and opt-out information.

Microsoft announces that it will spend about $2 billion to fend off rivals such as Google and thwart Sony’s video game ambitions and the company loses more than $30 billion in market capitalization in a day. Fair trade or overreaction? Probably a little of both according to experts at Wharton. Microsoft certainly isn’t hurting financially. The company reported net income of $2.98 billion on revenues of $10.9 billion for the quarter ending March 31. But the big question is whether that performance will be maintained over the next decade. One issue say Wharton faculty and others is whether Microsoft has grown too big to be nimble enough to compete with its long list of rivals on many fronts: Google in Internet search and advertising; Sony in video games with the launch of its Playstation 3 on November 17; Linux inside the corporation; and Apple Computer in digital media to name just a few. By extending its reach into new markets such as mobile communications and digital entertainment is Microsoft in dang

Almost anyone who has been following the auto industry especially in the U.S. will agree that lately it has had a bumpy ride. For one thing the difficulties of GM and Ford have filled the headlines for several months now and there has been lots of speculation about how severe these problems are. In addition the auto parts maker Delphi which was spun off from GM in 1999 is now in the midst of bankruptcy proceedings and actively negotiating with both the United Auto Workers union and GM. Yet another challenge is growing global competition: Virtually all the Japanese brands are showing an increase in market share in the U.S. And finally questions continue to persist about advances in technology especially as they concern the new hybrid models. John Paul MacDuffie a professor of management at Wharton and co-director of the International Motor Vehicle Program spoke about these issues with Knowledge at Wharton’s Mukul Pandya and Robbie Shell. See acast.com/privacy for privacy and opt-out information.

In Wharton marketing professor George Day’s world the term ”peripheral vision” means the ability of companies to detect interpret and act on distant signals whether a rumor heard about a new rival a newspaper article about a new medical device or the popularity of a blog started by a dissatisfied customer. Day and co-author Paul Schoemaker have written a book entitled appropriately enough Peripheral Vision: Detecting the Weak Signals That Will Make or Break Your Company designed to help firms avoid being blindsided by unexpected events. According to the authors only 20% of companies have succeeded in developing peripheral vision well enough to stay ahead of their competitors. Day talked with Knowledge at Wharton’s Mukul Pandya and Robbie Shell about his book. See acast.com/privacy for privacy and opt-out information.

As CBS News put it ”When the Fed Chairman Speaks Everyone Freaks.” What that hyperbolic headline refers to is the sell-off in stocks and rise in bond yields this week after Ben Bernanke the Federal Reserve chairman reportedly told a CNBC reporter that markets had misread his testimony before Congress last week during which he had seemed to hint that the Fed might pause in raising interest rates. Stocks and bonds rallied in response. But after suggesting at a Washington correspondents’ dinner over the weekend that the markets had ”misunderstood” him the sell-off began. What exactly is the Fed likely to do on May 10? And what will that mean for investors? Jeremy Siegel a professor of finance at Wharton and author of the book The Future for Investors spoke with Knowledge at Wharton’s Mukul Pandya and Robbie Shell about interest rates oil prices the commodities markets Bernanke’s learning curve and President Bush’s approval ratings among other topics. See acast.com/privacy for privacy and opt-out i

Rising prices for crude oil and gasoline have alarmed many consumers and put President Bush and other U.S. politicians in a position where they feel they have to do something -- anything -- in response especially in an election year. But members of Wharton’s finance department and private-sector economists say it’s a good time to look rationally at the reasons for the price hikes and their likely effect on the economy and on energy policy. They also say that as long as the United States continues to rely on oil producers in other parts of the world high prices and price volatility will be the norm. Bolivian President Evo Morales’s decision announced this week to nationalize the country’s natural gas sector only underscores that point. See acast.com/privacy for privacy and opt-out information.

The recent resignation of Scott McNealy as CEO of Sun Microsystems the company he founded 22 years ago is another milestone in the succession process of a large technology company. But tech companies often pose unique succession issues in part because of their unusually fast growth and young founders according to Wharton faculty and technology experts. The challenges are especially critical when the entrepreneurs are celebrities and when the company has grown large enough that broad-based management skills become as crucial as entrepreneurial passion. See acast.com/privacy for privacy and opt-out information.

When a well-known compensation consulting firm predicted in early April that new accounting rules wouldn’t have any impact on the use of options as compensation for corporate executives Wharton accounting professor Mary Ellen Carter was ready to disagree. ”That’s just not true ” she says. ”Options will be cut and directors will be switching to restricted stock for executive compensation.” Carter’s response is the result of her research into the role of accounting in the design of CEO equity compensation which is also the title of a new paper written by her Luann J. Lynch from Darden and Wharton accounting professor Irem Tuna. Their study coincides with a ruling implemented this year by the Financial Accounting Standards Board (FASB) that requires all firms to expense the value of employee stock options. See acast.com/privacy for privacy and opt-out information.

The 2006 Venture Finals of Wharton’s Business Plan Competition offered participants judges and the audience an opportunity to peer into the future by surveying potential startups. It was a chance to see what aspiring ambitious entrepreneurs believe will be the next hot discovery. At this year’s competition healthcare companies -- ranging from medical-device makers to a creator of artificial muscles -- grabbed five of the eight finalist slots. The other three finalists included a virtual call center an online mortgage broker and a company that would replace credit cards with fingerprints. Read on and see if you have a nose for the next ”new new thing.” See acast.com/privacy for privacy and opt-out information.