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 / Spring 2008 / Issue 50(originally published by Booz & Company)


Recent Research

The Corporate Confessional
Title: The Causes and Consequences of Industry Self-Policing
Authors: Michael W. Toffel ([email protected]) and Jodi L. Short ([email protected])
Publisher: Harvard Business School, Working Paper No. 08-021

If you want to get away with questionable behavior, just confess. That’s the message from a number of federal agencies to the companies they regulate. For example, health-care providers that have violated their Medicare or Medicaid ob­ligations can own up to the De­partment of Health and Human Services and expect favorable treatment. The Justice Department’s antitrust division has a similar program it calls the Corporate Leniency Policy. And the Environmental Protection Agency (EPA) is shifting its emphasis from statutory enforcement to voluntary self-regulation.

This paper examines data from the EPA to determine whether it is more efficient, less costly, and just as effective to trust miscreant companies to turn themselves in as it is to chase them down. Between 1997 and 2003, nearly 3,500 company facilities voluntarily disclosed violations to the EPA — including illegal shipment of hazardous waste and failure to report toxic chemical emissions — and received reduced or waived penalties. The good news is that organizations freely dis­closing their own misbehavior tend to become more compliant with government regulations in the fu­ture. However, the researchers also raise issues that might offset this rosy outcome. Self-disclosure could encourage broader leniency from inspectors who may feel more sympathetic to companies that appear to be honest. In addition, the impetus to confess might actually come from the threat of traditional en­forcement activities, such as inspections and prosecutions. Another complication: Although self-policing appears to be a cheaper option, actually communicating incentives for disclosure to companies is costly.

Bottom Line: Self-reporting programs are popular because they are often more efficient and they appear to be less expensive than regulatory enforcement in catching wrong­doing by companies. But in many cases, their costs are higher than is recognized — and it’s only the fear of old-fashioned prosecutorial methods that may provide the motivation for confession.

Offshoring Customer Satisfaction
Title: Does Offshoring Impact Customer Satisfaction?
Authors: Jonathan Whitaker ([email protected]), Mayuram S. Krishnan ([email protected]), and Claes Fornell ([email protected])
Publisher: Self-published

Companies tend to be attracted to offshoring, or outsourcing business activities to overseas locations, as a way to save money. But how does it affect customer satisfaction? To find out, the authors analyzed customer satisfaction scores for 154 North American corporations and business units that offshored between 1998 and 2005. The data came from the American Customer Satisfaction Index produced by the National Quality Research Center at the University of Michigan. The results were generally not surprising. On the one hand, people were unhappy with companies that offshored front-office functions, such as sales and customer service, reflecting the fact that reaching a well-meaning but somewhat disconnected person in India when dealing with the frustration of a new appliance on the fritz almost never builds consumer loyalty and confidence that the situation will turn out right. On the other hand, customers were positively disposed toward companies offshoring back-office functions, such as IT, finance, and HR, perhaps because they had little direct contact with how these tasks were managed. Interestingly, consumers viewed front-office or back-office offshoring primarily as a harbinger of better or worse service but not as a precursor to lower prices — suggesting that companies may be cutting costs by offshoring, but they are not seen as passing on the savings to their customers.

Bottom Line: Offshoring should be viewed from many angles before it is embraced, including how it will affect customer attitudes toward the company. Cost savings could be more than offset by the loss of consumer favor.

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