Repeat Sales as a Matching Estimator

The most common approaches for constructing house price indices—hedonic price functions and the repeat sales estimator—focus on changes over time in mean prices. Though the hedonic approach is less wasteful of data than the repeat sales estimator, it relies on an accurate specification of the underlying econometric model. I suggest using a matching estimator as an alternative to the hedonic and repeat sales approaches. Like the repeat sales approach, a matching estimator uses pairs of sales from different dates to estimate the mean difference in sales prices over time. The matching approach preserves much larger sample sizes than the repeat sales estimator while requiring less preimposed structure than the hedonic approach. The matching approach makes it easy to characterize changes in the full distribution of house prices.     

Product Quality as a Formative Index: Evaluating an Alternative Measurement Approach*

Product quality is a critical competitive issue when launching new products. However, the product quality construct has been measured inconsistently in prior research, with researchers often not considering multiple components of quality. Thus, results may not be comparable across studies, and when dimensions of quality are excluded, relationships found between quality and other constructs may be spurious. As a response, we develop a formative measurement approach to product quality. The components of product quality are not interchangeable in measurement as typical reflective approaches assume. These dimensions make up the quality construct, necessitating a formative measurement approach. Here, this approach is developed and tested, compared with the traditional reflective approach, and its relationships with other constructs evaluated in a model of new product performance. Overall, this formative approach is shown both to be theoretically appropriate and to possess strong measurement properties. This approach has clear implications for research concerning product quality and improving its measurement in the future.     

FREE CASH FLOW (FCF), ECONOMIC VALUE ADDED (EVA™), AND NET PRESENT VALUE (NPV):. A RECONCILIATION OF VARIATIONS OF DISCOUNTED-CASH-FLOW (DCF) VALUATION

The paper assists the user of DCF methods by clearly setting forth the relationship of free-cash-flow (FCF) and economic value added (EVA?) concepts to each other and to the more traditional applications of DCF thinking. We follow others in demonstrating the equivalence between EVA and NPV, but our approach is more general in that it links the problems of security valuation, enterprise valuation, and investment project selection. Additionally, our approach relates more directly to use of standard financial accounting information. Beginning with cash budget identity, we show that the discounting of appropriately defined cash flows under the free-cash-flow valuation approach (FCF) is mathematically equivalent to the discounting of appropriately defined economic profits under the EVA? approach. The concept of net operating profit after-tax (NOPAT), found by adding after-tax interest payments to net profit after taxes, is central to both approaches, but there the computational similarities end. The FCF approach focuses on the periodic total cash flows obtained by deducting total net investment and adding net debt issuance to net operating cash flow, whereas the EVA? approach requires defining the periodic total investment in the firm. In a project valuation context, both FCF and EVA? are conceptually equivalent to NPV. Each approach necessitates a myriad of adjustments to the accounting information available for most corporations.     

A radical constructivist approach to boundaries in business network research

We contribute to the business network literature by presenting and introducing a radical constructivist research approach, in which we foreground sharing the context of an actor's understanding of interaction. We elaborate the approach by illuminating the problematic issue of boundaries in business network research. We conceptualize boundaries as inter-action spaces and times where differences are created, maintained and changed in a physical-social setting. We make a distinction between boundaries and borders, with the latter being simply representations. We undertake a review of select realist and social constructivist business network literature to distinguish and elaborate the potential of a radical constructivist perspective, as an alternative approach. The approach appears most useful when the researcher and interview participant do not have a convergent understanding of the research phenomenon. Further, a radical constructivist approach is eminently suitable for settings where inter-action conditions and content are changing, for example in times of crisis or network change. We present the metaphors of castles and frontiers, as illustrative research tools suitable for a radical constructivist study of boundaries in business networks.     

Managing Seller–Buyer Relationships during New Product Development*

Ineffective relationship management with potential buyers during new product development (NPD) can be an important contributor to new product failure in technology‐based, industrial markets. However, empirical research on managing these relationships remains underdeveloped. This study addresses this deficiency by developing an empirically based taxonomy of relationship approaches used by sellers to develop technology‐based, industrial innovations, identifying situational characteristics that correlate with the choice of a particular relationship approach, and evaluating sellers' satisfaction with their relationship approach. The study's conceptual model is rooted in transaction cost analysis (TCA) and draws from extant literature on seller–buyer relationships during NPD. It was tested with data from 334 small to mid‐sized firms in a variety of technology‐based industrial markets. The results indicate that sellers use three basic relationship approaches during NPD: a bilateral approach, a buyer‐guided approach, and a seller‐guided approach. While the bilateral approach relies on a mutual exchange of information, the buyer‐guided and seller‐guided approaches do not. Juxtaposed with the high levels of satisfaction experienced by sellers in the sample, the study suggests that no one relationship approach is universally desirable. Therefore, managers may need to engage in a portfolio of relationship approaches with buyers during NPD; further, these approaches should correlate with buyer‐related (i.e., perceived buyer knowledge and prior relationship history) and innovation‐related (i.e., product customization and technological uncertainty) characteristics. Collectively, these results can help sellers optimize their relationships with buyers during NPD.     

The Accuracy of Hybrid Estimating Approaches: A Case Study of an Australian State Road & Traffic Authority

Reference class forecasting (RCF) is increasingly being adopted to mitigate two main factors causing persistent cost overruns in infrastructure projects—optimism bias and strategic misrepresentation. In practice, organizations tend to tailor generic estimating approaches to their unique operating environments by developing hybrid approaches blending RCF with other approaches such as the conventional fixed contingency approach. Yet, little empirical evidence exists on the accuracy of RCF or its variations. This study presents the results of estimation accuracy of a sample of road projects conducted by an Australian State Road & Traffic Authority using a hybrid estimating approach blending primarily RCF with fixed contingency approach. The results are then compared with historical results from literature on infrastructure projects and samples of two other dominant estimation methods, namely, the conventional fixed contingency approach and risk-based estimating (RBE). This study finds that the average accuracy of this sample using the hybrid approach compares favorably to historical results, which typically use the fixed contingency approach.     

Shareholder Value, Real Options, and Innovation in Technology-Intensive Companies

We show how central concepts from technology and innovation management (TIM), sequential models of the New Product Development (NPD) process, and the valuation technique of 'real options' can be linked, to provide a valuation framework that can be used in the value-based management of technology-intensive companies.
We introduce a binomial option tree which incorporates the flexibility and the risks inherent in the NPD process into its evaluation in a theoretically correct way and is at the same time simple and easy to use. In this way, our options-based approach ties the valuation of hitech and life sciences companies closer to the underlying growth opportunities and incorporates much of the 'gut feel' of experienced industry practitioners into the valuation. As a consequence, the approach leads to more defensible valuations and allows powerful insights for the value-based management of technology-intensive companies.
In two numerical examples we demonstrate that the theoretically more sound option tree approach in practice can produce different valuations and lead to different decisions than a simple 'discounted cash flow (DCF) tree' approach and has therefore potential to improve managerial decision making. Finally, we describe a real life situation where our options-based approach was successfully applied in the valuation for the initial public offering of a biotech company.     

A critical review of the “ladder of investment” approach

The “ladder of investment” is a regulatory approach proposed by Cave (2006), which has been widely embraced by national regulatory authorities in the European telecommunications sector. The approach entails providing entrants, successively, with different levels of access—the “rungs” of the investment ladder, while inducing them to climb the ladder by setting an access charge that increases over time or by withdrawing access obligations after some pre-determined date (i.e., by setting sunset clauses). Proponents of the ladder of investment approach claim that such regulatory measures would make service-based entry and facility-based entry complements—albeit they have been traditionally viewed as substitutes—in promoting competition. The regulators, thus, have shown a strong interest in this approach. The paper provides a critical review of the ladder of investment approach by setting out its two underlying assumptions and discussing their validity with references to the related industrial organization literature.     

Strategic Project Leadership ® Toward a strategic approach to project management

Strategic Project Leadership ^® (SPL) is a new approach to project management that is focusing projects on creating competitive advantage and winning in the marketplace. This approach is particularly relevant to strategic projects that are initiated to create the company's future, including almost all R&D projects. In the traditional approach, project managers and teams were typically focused on getting the job done, and meeting time and budget goals. SPL , provides a modern view. It suggests that projects are initiated for business reasons, and that just 'getting the job done' is not enough. This paper presents a mindset, a framework, and a practical, step-by-step approach on how to connect project management to business results and how to turn projects into powerful competitive weapons. The paper is based on extensive case research, of which we present six cases – three successes and three disappointments – to demonstrate the value of the SPL approach to project management.¹     

Recovering markups from production data

In this paper, I discuss, what I call, the Production-Approach to recovering markups. In contrast to the most popular approach in empirical IO, which relies on demand estimation, this approach requires standard production data while allowing for various price-setting models and puts no restrictions on underlying consumer demand. Using production data together with standard cost minimization allows a researcher to obtain markups in a flexible way. After presenting a brief and selective overview of the literature I contrast the production approach to that of the more popular demand estimation approach. This discussion makes it clear that both approaches face important trade-offs and at a minimum empirical economist should have both techniques as part of their toolbox. The hope is that the use of both methods will only depend on the data at hand and the relevant institutional knowledge, paired with the actual research question we are trying to answer.     

Vendor segmentation: An additional level of market segmentation

This article describes a new conceptual approach, called “vendor segmentation,” which will be useful to industrial marketers in making their vendor evaluation and selection procedures more customer oriented, and hence more profitable, than conventional procedures. A practical approach for doing vendor segmentation analysis is outlined as a stepwise procedure, and the potential benefits and limitations of using this approach are discussed.     

Can local telecommunications be self-policing?: A proposed discovery procedure

To discover whether markets for local telecommunication services can be competitively self-policing, this paper advocates a comprehensive approach to policy making as opposed to a more piecemeal approach. The problem with a piecemeal approach is that the merits of particular policies are difficult to assess without reference to the total program in which they are embedded. What seems reasonable when considered along with other complementary policies may be unreasonable if undertaken in a different context. We describe the necessary conditions for an illuminating experiment that will both insure a fair test of competition's viability and afford adequate protections to the consuming public.     

Target pricing: Demand-side versus supply-side approaches

The practice of target pricing has been a key factor in the success of Japanese manufacturers. In the more commonly known demand-side approach, the target price for the supplier equals the manufacturer's market price less a percent margin for the manufacturer but no cost-improvement expenses are shared. In the supply-side approach, cost-improvement expenses are shared and the target price equals the supplier's cost plus a percent margin for the supplier. Using a general oligopoly and Cournot duopoly models, we characterize the equilibrium and optimal policy for each approach under various conditions. We find that sharing cost-reduction expenses allows the manufacturer using the supply-side approach to attain competitive advantage in the form of increased market share and higher profit, particularly in industrial conditions where margins are thin and price sensitivities are high.     

The Risk and Return of Commercial Real Estate: A Property Level Analysis

I compare the performance of the index‐based time series approach and the cross‐sectional approach in estimating factor loadings of nontraded assets, and show that the latter likely provides less biased and more efficient estimates. I then use the cross‐sectional approach to estimate the loadings of privately owned commercial real estate on the Fama and French (1993) factors, the Pastor and Stambaugh (2003) liquidity factor, and two bond market factors, using a sample of 14,115 properties in the 1977–2012 period. I find statistically significant loadings, of which the signs seem consistent across property types, but the magnitude varies. Using the time series approach on the same data, I find insignificant loadings on virtually all factors. To investigate the sources of the weak results from the time series approach, I conduct a Monte Carlo simulation in which both approaches are correctly specified and indices can be estimated perfectly. Simulation results suggest that the cross‐sectional approach provides more accurate estimates under reasonable market conditions.     

Network modeling approaches for calculating wholesale NGA prices: A full comparison based on the Greek fixed broadband market

According to the European Commission Recommendation for setting copper and fiber wholesale prices where cost orientation is imposed as a remedy, National Regulatory Authorities (NRAs) should adopt a Bottom-UP Long-Run Incremental Cost Plus (BU LRIC+) costing methodology that estimates the current cost that a hypothetical efficient operator would incur to build a modern efficient Next Generation Access (NGA) network. The starting point of modeling an efficient operator investing in NGA networks is the network modeling approach. In this paper, we compare the most widely adopted network modeling approaches in terms of wholesale fiber-to-the-home (FTTH) prices. In particular, the modified scorched node approach is compared to the extreme cases of the scorched node and the scorched earth approaches. The comparison between the aforementioned scenarios sheds light on the impact of each approach on the wholesale FTTH prices. The main finding of this paper is that the scorched earth approach leads to a maximum of 10% reduction in the short-term access prices compared to the most inefficient scorched node approach, whereas further extending its optimizations by optimizing the number of central offices, both the short-term and long-term wholesale price reductions are quite significant (more than 20%) regardless of service speeds. Consequently, NRAs should consider a geographically differentiated modeling approach when regulating the wholesale market by adjusting the level of scorching in each area and network segment according to the investment plans of telecom operators. An appropriate variation of the modeled network operator's efficiency is expected to more accurately represent the costs of a reasonably efficient operator based on the real market conditions and a forward-looking perspective. These findings provide valuable information to both network operators and telecom regulators.     

An optimal way to licence the radio spectrum

Radio spectrum licences are generally specified in terms of the power a holder is allowed to transmit. However, if licences become flexible, allowing change of use and technology, then this licensing approach could result in significant interference between users. A new approach is proposed termed “spectrum usage rights” (SURs) which restricts the interference a licence holder is allowed to cause rather than the power they are allowed to transmit. This approach is shown to protect users against interference while providing the maximum flexibility possible and its implementation is discussed.     

Product-based planning: the importance of project and project management deliverables in the management of clinical trials

As the cost of clinical trials continues to rise organisations are looking at ways of managing this part of the drug development process as effectively and efficiently as possible. As a tactical response, many pharmaceutical companies outsource the management of clinical trials to clinical research organisations on a fixed-price contract basis. This paper presents an alternative approach based on the concept of Product-Based Planning. Key elements of the approach are the creation of a deliverables budget and the establishment of project management-related deliverables. The conceptual developments described in the paper are supported by a telephone survey of 10 UK practitioners. The survey confirms the prevalence and limitations of fixed-price contracts while highlighting a willingness to try a deliverable-based approach – initially through small pilot studies. The key barrier to implementing a new approach is resistance from key stakeholders, such as finance departments, which can be addressed through selling of the business case.     

Design Research in Innovation Management: a pragmatic and human-centered approach

This article outlines a pragmatic and human-centered Design Research approach in Innovation Management. This research approach is of particular relevance when investigating Innovation Management under conditions of high uncertainty associated with changing environments and the complexity of transforming organizational architectures and business models. Under conditions of high uncertainty and complexity, research approaches that reduce complexity to specific factors are unsuitable. In contrast, Design Research in Innovation Management permits investigating Innovation Management under these conditions as it enables examining Innovation Management interventions and their impact within real-world messiness. Design Research in Innovation Management empirically examines if the designed intervention provides a satisfactory and meaningful Innovation Management solution. This article provides a guide on how to examine Innovation Management interventions and how to generate practical knowledge. This practical knowledge enables practitioners to take action to facilitate innovation, and the approach allows viewing Innovation Management as a design practice. The outlined approach provides a new way to investigate and expand the discourse in the Innovation Management literature by developing practical knowledge in addition to theories and conceptual models.     

The new product matrix

The paper describes the concept, design and experience with a matrix approach to the problems of communication and co-ordination in a multi-discipline R & D activity. It puts forward a systems approach to the problem of overcoming ‘differentiations’ in high technology industry, as opposed to the individual in the role of ‘integrator’.