Telfer School professors shared their perspectives on innovation management with a South African delegation led by Dr. Phil Mjwara, Director-General of South Africa’s Science & Technology Department on September 13.

Following an introduction by Dean François Julien, Tom Brzustowski, RBC Financial Group Professor in the Commercialization of Innovation, provided an overview of innovation in Canada and the role of the universities.

Tyler Chamberlin highlighted the local dimension of commercialization and the ability of regions to adapt to changes in the international marketplace.

Margaret Dalziel examined how best to measure the impacts of government investments in innovation.

Joe Irvine, Director of the Technology Transfer and Business Enterprise (TTBE) office at the University of Ottawa, discussed the work of his team in advancing strategic partnerships that create value.

The South African delegation was in Ottawa as part of a study tour examining technology commercialization, innovation management and intellectual property management in Canada.

Photo: Viviana Fernandez, Research Facilitator, Phil Mjwara, Director-General of South Africa’s Science & Technology Department (DST), Professor Tom Brzustowski, Mmapitso Mokotedi of DST and Dean François Julien.

Craig Kuziemsky tackled the unintended benefits of introducing health information systems (HIS) at the European Medical Informatics Conference in Pisa, Italy on Aug. 27. Professor Kuziemsky and a team of researchers from Canada, Denmark, and Australia used several case studies of HIS implementation to develop a model of unintended benefits of HIS usage with three categories of benefits: patient, service delivery and administrative. They also examined the implications of these benefits on the design and evaluation of HISs. The benefits were not visible until after these systems were used in real clinical situations and settings. This was in contrast to studies of negative consequences of HIS implementation, which are often easier to identify because they raise issues which tend to draw immediate attention.

How is firm performance affected by board composition? For family firms, board diversity tends to improve the quality of board strategic decisions, but only at low levels, says a new study based on 289 M & A decisions by Canadian firms from 2000-2007.

“Strategic decision-making may be adversely affected when board diversity is too high and the advantages of close-knit governance – coherence, trust and long-term orientation – are lost,” says the Telfer School’s Walid Ben-Amar, who published the findings in the British Journal of Management. “On the other hand, introducing diversity on the board at low levels may bring new ideas and perspectives to the controlling family without threatening their coherence.”

Professor Ben-Amar and his co-authors from HEC Montreal conclude that diversity on the board of directors is generally a good thing, adding to openness and decision-making analytical quality. But they found that each company has to find its optimal governance design based on its own ownership structure, industry, risks, and business model.

“The general picture that emerges is that a balance should be struck between control and freedom when the time comes to select board members. Good governance is probably more about the building of such a balance than the simple implementation of pre-specific rules.”

Measures of “demographic diversity” (DD) and “statutory diversity” (SD) were used in the study. DD refers to the culture, nationality, gender and experience of directors. SD refers to laws and best practices designed to promote their independence from management.

The findings confirmed that a higher level of diversity in general is not a panacea for all types of firms in board strategic decision-making. Also, DD has a clear and non-linear effect on M&A performance while SD has a limited influence.

Explains Dr. Ben-Amar: “Our research shows that rather than providing strict rules, regulatory authorities should encourage companies to design the composition of the board according to their organization and financial character and reach an optimal level of diversity.”

Behavioural studies were at one time thought to be peripheral to the fields of accounting and finance. But that notion has been put to rest with scholars demonstrating that to more fully understand these disciplines in practice, one has to understand how people actually make decisions.

Charting the way forward are scholars like Professor Shujun Ding of the Telfer School. He investigated the application of the balanced scorecard (BSC), a tool widely used in performance evaluation. He showed that the complexity of the tool resulted in information overloading, which compromised decision quality. In particular, the BSC was vulnerable to mood congruency biases, which lead judgments to accord with moods. The research also showed that financial incentives modified those biases.

“My results were analogous to what happens when you are a bank loan officer or an institutional investor who has to make a decision about a loan or an investment,” explains Dr. Ding, who teaches courses in both management and financial accounting.

“There might be about 20 factors that should inform your decision, and it’s desirable to consider all of these factors. But in practice, decision makers without decision aids only consider 7-8 of them, at most. It’s a subjective evaluation; you may have to ignore other pieces of information, and you need signals to enable you to make a decision.”

Correcting bias

Moods are important in this regard because they provide the underlying context for thought processes and behaviours, Dr. Ding says. Their effects have been observed in an increasing number of studies. Research in finance, for example, has shown that stock prices can be influenced by mood effects linked to a sunny day versus a rainy day, or a win or a loss on the soccer pitch.

Once bias has been identified, the researcher undertakes an even harder task: finding a way to correct it. Dr. Ding’s experiments showed that management control systems could eliminate BSC-related mood biases. In particular, adding financial incentives led to benchmark-consistent judgments when a less complicated BSC is designed.

This finding suggested a promising new research direction while confirming the importance of behaviours in the accounting field. “Previously we thought that economic theories were able to explain everything,” observes Dr. Ding. “Once you recognize that decisions makers are human beings, subject to influence from many factors, a richer study of fields such as finance, accounting, and corporate governance begins to take shape.”