Case Study Description of Practical Regression: Introduction to Endogeneity: Omitted Variable Bias
This is the fourth in a series of lecture notes which, if tied together into a textbook, might be entitled "Practical Regression." The purpose of the notes is to supplement the theoretical content of most statistics texts with practical advice based on nearly three decades of experience of the author, combined with over one hundred years of experience of colleagues who have offered guidance. As the title "Practical Regression" suggests, these notes are a guide to performing regression in practice. This technical note introduces the concept of endogeneity bias with specific coverage of omitted variable bias. Students who read this note will understand why omitting key predictors can sometimes bias the coefficients of included variables. The note illustrates omitted variable bias by means of an extended example and offers practical advice for model building that balances the desire for parsimony developed in a previous note with the need to limit omitted variable bias.
Swot Analysis of "Practical Regression: Introduction to Endogeneity: Omitted Variable Bias" written by David Dranove includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Bias Omitted facing as an external strategic factors. Some of the topics covered in Practical Regression: Introduction to Endogeneity: Omitted Variable Bias case study are - Strategic Management Strategies, Financial management, Market research and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Practical Regression: Introduction to Endogeneity: Omitted Variable Bias casestudy better are - – there is backlash against globalization, competitive advantages are harder to sustain because of technology dispersion, wage bills are increasing, technology disruption, customer relationship management is fast transforming because of increasing concerns over data privacy, geopolitical disruptions, increasing government debt because of Covid-19 spendings,
challanges to central banks by blockchain based private currencies, supply chains are disrupted by pandemic , etc
Introduction to SWOT Analysis of Practical Regression: Introduction to Endogeneity: Omitted Variable Bias
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Practical Regression: Introduction to Endogeneity: Omitted Variable Bias case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Bias Omitted, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Bias Omitted operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Practical Regression: Introduction to Endogeneity: Omitted Variable Bias can be done for the following purposes –
1. Strategic planning using facts provided in Practical Regression: Introduction to Endogeneity: Omitted Variable Bias case study
2. Improving business portfolio management of Bias Omitted
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Bias Omitted
Strengths Practical Regression: Introduction to Endogeneity: Omitted Variable Bias | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Bias Omitted in Practical Regression: Introduction to Endogeneity: Omitted Variable Bias Harvard Business Review case study are -
Superior customer experience
– The customer experience strategy of Bias Omitted in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Ability to recruit top talent
– Bias Omitted is one of the leading recruiters in the industry. Managers in the Practical Regression: Introduction to Endogeneity: Omitted Variable Bias are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Highly skilled collaborators
– Bias Omitted has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Practical Regression: Introduction to Endogeneity: Omitted Variable Bias HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– Bias Omitted has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Operational resilience
– The operational resilience strategy in the Practical Regression: Introduction to Endogeneity: Omitted Variable Bias Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Strong track record of project management
– Bias Omitted is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Successful track record of launching new products
– Bias Omitted has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Bias Omitted has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
High brand equity
– Bias Omitted has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Bias Omitted to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Innovation driven organization
– Bias Omitted is one of the most innovative firm in sector. Manager in Practical Regression: Introduction to Endogeneity: Omitted Variable Bias Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Learning organization
- Bias Omitted is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Bias Omitted is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders in Practical Regression: Introduction to Endogeneity: Omitted Variable Bias Harvard Business Review case study emphasize – knowledge, initiative, and innovation.
Low bargaining power of suppliers
– Suppliers of Bias Omitted in the sector have low bargaining power. Practical Regression: Introduction to Endogeneity: Omitted Variable Bias has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Bias Omitted to manage not only supply disruptions but also source products at highly competitive prices.
High switching costs
– The high switching costs that Bias Omitted has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Weaknesses Practical Regression: Introduction to Endogeneity: Omitted Variable Bias | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Practical Regression: Introduction to Endogeneity: Omitted Variable Bias are -
Low market penetration in new markets
– Outside its home market of Bias Omitted, firm in the HBR case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Slow decision making process
– As mentioned earlier in the report, Bias Omitted has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Bias Omitted even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Need for greater diversity
– Bias Omitted has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias, it seems that the employees of Bias Omitted don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Practical Regression: Introduction to Endogeneity: Omitted Variable Bias HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Bias Omitted has relatively successful track record of launching new products.
High operating costs
– Compare to the competitors, firm in the HBR case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Bias Omitted 's lucrative customers.
Aligning sales with marketing
– It come across in the case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Practical Regression: Introduction to Endogeneity: Omitted Variable Bias can leverage the sales team experience to cultivate customer relationships as Bias Omitted is planning to shift buying processes online.
Capital Spending Reduction
– Even during the low interest decade, Bias Omitted has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias, in the dynamic environment Bias Omitted has struggled to respond to the nimble upstart competition. Bias Omitted has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Lack of clear differentiation of Bias Omitted products
– To increase the profitability and margins on the products, Bias Omitted needs to provide more differentiated products than what it is currently offering in the marketplace.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Bias Omitted supply chain. Even after few cautionary changes mentioned in the HBR case study - Practical Regression: Introduction to Endogeneity: Omitted Variable Bias, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Bias Omitted vulnerable to further global disruptions in South East Asia.
Opportunities Practical Regression: Introduction to Endogeneity: Omitted Variable Bias | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias are -
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Bias Omitted can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Practical Regression: Introduction to Endogeneity: Omitted Variable Bias, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Building a culture of innovation
– managers at Bias Omitted can make experimentation a productive activity and build a culture of innovation using approaches such as – mining transaction data, A/B testing of websites and selling platforms, engaging potential customers over various needs, and building on small ideas in the Finance & Accounting segment.
Learning at scale
– Online learning technologies has now opened space for Bias Omitted to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Bias Omitted can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Low interest rates
– Even though inflation is raising its head in most developed economies, Bias Omitted can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Bias Omitted is facing challenges because of the dominance of functional experts in the organization. Practical Regression: Introduction to Endogeneity: Omitted Variable Bias case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Bias Omitted in the consumer business. Now Bias Omitted can target international markets with far fewer capital restrictions requirements than the existing system.
Leveraging digital technologies
– Bias Omitted can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Loyalty marketing
– Bias Omitted has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Bias Omitted can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Bias Omitted can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Bias Omitted can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Better consumer reach
– The expansion of the 5G network will help Bias Omitted to increase its market reach. Bias Omitted will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Bias Omitted to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Bias Omitted to hire the very best people irrespective of their geographical location.
Threats Practical Regression: Introduction to Endogeneity: Omitted Variable Bias External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias are -
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Bias Omitted can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias, Bias Omitted may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Shortening product life cycle
– it is one of the major threat that Bias Omitted is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Bias Omitted in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Bias Omitted needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Bias Omitted with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Bias Omitted.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Bias Omitted will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Technology acceleration in Forth Industrial Revolution
– Bias Omitted has witnessed rapid integration of technology during Covid-19 in the Finance & Accounting industry. As one of the leading players in the industry, Bias Omitted needs to keep up with the evolution of technology in the Finance & Accounting sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Increasing wage structure of Bias Omitted
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Bias Omitted.
Stagnating economy with rate increase
– Bias Omitted can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
Regulatory challenges
– Bias Omitted needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Weighted SWOT Analysis of Practical Regression: Introduction to Endogeneity: Omitted Variable Bias Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Practical Regression: Introduction to Endogeneity: Omitted Variable Bias is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Practical Regression: Introduction to Endogeneity: Omitted Variable Bias is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Bias Omitted needs to make to build a sustainable competitive advantage.
