Trading in Textbook Assumptions for Business Insights
H. Sebastian Heese
Department of Operations and Decision Technologies, Kelley School of Business: Indiana University
“I can’t imagine any other place with the same kind of collegiality. The faculty gets along, we support each other, and that gives us a lot of freedom to pursue our research interests.”
“Cheating is good”—this is something you would never expect to hear from a professor at the Kelley School, but that’s how Seb Heese explains the surprising findings behind his research on revenue sharing contracts, where, at least in some cases, dishonesty may be the best policy.
With revenue sharing contracts, a manufacturer sells a retailer a product at a lower price point in exchange for a percentage of the revenues, aligning incentives along the supply chain.
Conflict occurs when the manufacturer can’t verify the retailer’s sales reports, giving the retailer a nearly irresistible opportunity to underreport sales and cheat the manufacturer out of part of its profit. Misreported profits open the door to potential lawsuits: cheating, on face value, is bad.
However, Heese’s mathematical analysis proves the opposite may hold.
”If the manufacturer can design an appropriate auditing policy, if it can limit the cheating, it can exploit the retailer’s opportunistic behavior and actually encourage the retailer to order more products—and that benefits everyone along the supply chain,” he says.
This is just one example of how Heese pushes his students to think around problems, to use analytical models to trade in assumptions for fresh insights.
“I look for fun problems in my research, and I like to bring those kinds of dynamic cases into the classroom,” says Heese.
Students at the Kelley School expect that, he adds.
“Our students are smart, focused, and interested in solving the challenges that confront business today. They’re not here for a grade. They’re here to see how much they can learn, to get as much out of the program as they can.”
Heese joined the Department of Operations and Decision Technologies in 2004, bringing his European perspective—he studied in Germany and Spain before coming to the States-and wit. “I often tell my students on the first day to forgive me for whatever I do, I’m European,” he jokes.
He was immediately impressed by the support faculty gave to students and each other.
“We eat lunch together every day. We actually like to spend time with each other,” he laughs.
“In all seriousness, I can’t imagine any other place with the same kind of collegiality. We get along, we support each other, and that gives us a lot of freedom to pursue our research interests,” he says.
Website I visit every day
“Google. I have a Facebook page that I rarely visit. It’s so easy to waste an hour there and I’m always afraid of that.”
Books I’m reading right now
“I just finished John Dies at the End by David Wong. I like to grab a big coffee and scan the shelves of the bookstore for covers that look intriguing. I gravitate toward the weird.”
Favorite Bloomington restaurant:
“Mikado. I love sushi. My wife and I eat it nearly twice a week”