Field Study Seminar: Understanding and Influencing Operations as an Investor
Course Number 6214
Professor Ananth Raman
Fall, Field Study Seminar earning 3 non-classroom credits
8 2-hour sessions plus Paper/project
Enrollment: limited to 25 students
For a number of years, my co-authors and I have been studying (via academic journals) problems at the intersection of finance and operations. This field-based seminar course seeks to advance this research agenda with a small group of MBA and doctoral students. This topic area plays well to the MBA students' strengths and interests.
Please be aware that this is a "work-in-process" course. I have offered such a course only twice before; to my knowledge, no such course is offered at any other institution. Hence, the materials in the course are, and will appear to be, unfinished.
Course Description
Most courses in operations management take the operators' perspective. By "operators," we refer to executives and managers who have substantial decision rights on operational activities, and also substantially more information than is available to investors (e.g., in financial statements and other publicly available data and news sources). In contrast, investors usually do not have decision rights on what a firm should do in its operations and also have access to less information than operators within the firm.
This course focuses on studying operational performance from the investors' perspective. By "investors," we refer to managers and firms who invest in the public equity market or in private equity. Investors need to be able to evaluate investments that could be expected to improve operational performance well before the impact of these changes and investments are apparent in the company's bottom-line. For example, could Toyota's market cap growth in the last 20-30 years have been predicted in the 1980s (when its market cap lagged that of GM but its operational performance was known to be better)? In general, imagine a company that starts making investments in employee training and morale with the (reasonable) expectation that these investments would lead to improved customer service, which in turn would lead to greater loyalty among customers, higher sales, and eventually higher profits. Many years might pass before the investments in employee training could be expected to provide additional profits. Is it reasonable to expect investors to reward such investments in training and morale even before these investments have begun to impact the firm's bottom-line favorably?
The investors' perspective on operations differs from the operators' in several ways. For example, even though they do not have the operators' decision rights and access to information, they have fiduciary duties to get the most of their investments as residual claimants. Second, even when investors have enhanced rights and access-such as in the case of private equity investors-it is unclear to what extent they can and should influence operational decisions without second-guessing management or jeopardizing longer term relations. Third, investors are likely to be aware of or have to manage multiple investments, so this provides an opportunity for investors to improve operations by benchmarking across firms, diffusing best practices, or creating synergies among their portfolios of investments. Fourth, investors often have exogenous incentives to time their exits (e.g., from accounting booking dates or from pressure by limited partners); this timing might be at odds with the timing of operational returns of their operator investees. Finally, investors have to match their investment charters and firms' operational characteristics, keeping in mind that the investment charters and firms' operations can change over time.
The learning objectives of this course can be summarized as addressing the following issues:
- How can (do and should) investors understand operations, given their limited information?
- How can (do and should) investors influence operations, given their limited decision rights and their own business needs?
Substantial time in the course will be devoted to a team-based study of a professional investor (e.g., private equity investor, hedge fund manager, or buy-side analyst in an asset management firm) with a particular view on evaluating operations. Each team will consist of 2-3 students; course instructors will play an active role in selecting the site for each paper and will be involved in the study.
The course will meet on selected Wednesday afternoons from 3-5 PM.