Managing the knowledge-based organization: five principles every manager can use

The post-industrial enterprise is knowledge-based organization whose wealth creation is based on innovation, creativity, discovery and inventiveness. What principles should guide managers in their efforts to make such firms successful in the global market-place? The author offers five: (1) conceptualize the business; (2) create high-value know-how; (3) organize around information; (4) productively mange knowledge workers; (5) transform work using information technology (IT). The author says that these principles are replacing those of the industrial age, when command and control management was demed necessary to implement the wealth-creating formula of efficiently allocating resources (labor, capital, materials and energy). While acknowledging that IT is an important tool, the author stresses that intellectual capital is the fundamental key to success of the modern firm.     

Organizational Contexts for Environmental Construction and Objectification Activity

This paper argues that organizations are the source of an adaptation–construction cycle. In that cycle, the consequences of organizational adaptations to current environmental states are constructed by the organization's managers into new environmental states. Therefore organizational action in response to environmental conditions has both an adaptive component and an unintended environmental enactment component. The paper identifies attributes of adapting organizations that increase the level of managerial activity devoted to environmental construction and objectification. The theoretical logic of delineating these organizational attributes moves the paper beyond present versions of enactment theory, ‘social construction of reality’ theory, and structuration theory to focus on predictors of variation in concrete activity resulting in environmental construction and objectification. Based on the discussion of the organizational predictors, propositions to be tested in future empirical research are offered. Also, the propositions are used to suggest extensions to enactment theory, social construction of reality theory, structuration theory, and contemporary versions of neo‐institutional theory. These extensions are detailed in the discussion section.     

Time diversification: Definitions and some closed-form solutions

We establish general conditions under which younger investors should invest a larger proportion of their wealth in risky assets than older ones. In the finite horizon dynamic setting, we show that such phenomenon, known as ‘‘time diversification,” can occur in the presence of human wealth, guaranteed consumption, or mean-reverting stock returns. We formalize two alternative notions of time diversification commonly confounded in the literature. Analytic solutions are provided for both time-series and cross-sectional forms of time diversification. To our best knowledge, this paper is the first to solve in closed-form the hedging demand for a CARA investor with inter-temporal consumption and a finite horizon, facing mean-reverting expected returns. Our results indicate that horizon can have a significant effect on the portfolio demand of a CARA investor due to inter-temporal hedging.     

Are Investors Misled by “Pro Forma” Earnings?*

This paper uses stock market data to investigate the popular claim that investors are misled by the “pro forma” earnings numbers conspicuously featured in the press releases of some U.S. firms. We first document the frequency and magnitude of pro forma earnings in press releases issued during June through August 2000, and describe the 433 firms that engaged in this financial disclosure strategy. Our test period predates public expressions of concern by trade associations and regulators that pro forma earnings may mislead investors and the subsequent issuance of guidelines and rules on the disclosure of pro forma earnings numbers. We use two complementary approaches to determine whether the share prices that investors assign to pro forma firms are systematically higher than the prices assigned to other firms. Our market‐multiples tests for differences in price levels find some evidence suggesting that pro forma firms may be priced higher than firms that do not use the disclosure strategy. This apparent overpricing is not, however, related to the pro forma earnings numbers themselves. Our narrow‐window stock returns tests reveal no evidence of a stock return premium for pro forma firms at the quarterly earnings announcement date. Collectively, the results cast doubt on the notion that investors are, on average, misled by pro forma earnings disclosures despite the widespread concern expressed in the financial press and by regulators.