- 03 Mar 2011
- Research & Ideas
HBS Faculty on Revolution in the Middle East and North Africa
The historic events in North Africa and the Middle East are examined by three professors: Deepak Malhotra, an authority on negotiation strategy; Noel Maurer, an expert on the politics and economics of the energy business; and Magnus Thor Torfason, an authority on how behavior is influenced by the social structures of individuals and organizations. Key concepts include: The US response to events in the Middle East and North Africa needs to be guided by three key tenets of effective diplomacy: considering our enemies tomorrow, not just our friends today; identifying what makes these situations different from other, similar situations; and being steered by values that can be clearly and consistently articulated. Although they bring uncertainty and higher oil prices in the short term, these revolutions offer the possibility of enhanced representation that will bring the people in these nations more stability, public goods, and a better and more competitive business environment. In autocratic states, protestors always face the threat of violent retribution. Social media networks helped to allay fears by showing people beforehand that the protests would be huge, thus providing some reassurance that it would be difficult for the regimes to retaliate. However, powerful international networks formed through major organizations, such as the United Nations, may be necessary to determine whether the protests are ultimately successful. Open for comment; 0 Comments.
- 03 Mar 2011
- Working Paper Summaries
How Firm Strategies Influence the Architecture of Transaction Networks
In business, an "ecosystem" refers to a group of firms that work together through a series of shared transactions to provide a complex product or service. Using data from the disparate Japanese electronics and automotive sectors, this paper tackles the following questions: Do hierarchies of interfirm transaction networks vary across different ecosystems? What practices explain the difference in hierarchy across these two ecosystems? How do firms' strategies influence hierarchy? And what environmental factors explain the differences in the largest firm's strategies in each ecosystem? Research was conducted by Carliss Y. Baldwin of Harvard Business School and Jianxi Luo, Daniel E. Whitney, and Christopher L. Magee of the Massachusetts Institute of Technology. Key concepts include: There is a much lower degree of hierarchy in the electronics sector than in the automotive sector, due to the numerous interfirm transaction cycles in the former. Many electronics firms have adopted the strategy of "vertically permeable boundaries," meaning that they allow goods to flow from division to division within the firm, but at the same time, internal divisions can buy from and sell to external suppliers and customers. This strategy, which apparently leads to an increase in transaction cycles and innovation, is virtually nonexistent in the automotive sector. Several environmental factors explain the difference in strategy at these firms. Electronics firms face short product life cycles, low transaction costs, and low levels of asset specificity (meaning investments initially meant to support one transaction are likely to retain their value even if they are used for a different transaction). Automotive firms, on the other hand, have long product life cycles, high transaction costs, and high levels of asset specificity. Closed for comment; 0 Comments.
- 02 Mar 2011
- Research & Ideas
Managing the Open Source vs. Proprietary Decision
In their new book, The Comingled Code, HBS professor Josh Lerner and London School of Economics professor Mark Schankerman look at the impact of open source software on economic development. Our book excerpt discusses implications for managers. Closed for comment; 0 Comments.
- 01 Mar 2011
- First Look
First Look: March 1
The new road to the C-suite … Do strategists do better zooming in or zooming out? … An intern's moral dilemma. Closed for comment; 0 Comments.
- 01 Mar 2011
- Working Paper Summaries
How Foundations Think: The Ford Foundation as a Dominating Institution in the Field of American Business Schools
What causes institutions to change? This paper adds organizational and exogenous perspective to existing theories by looking at the idea of "dominating institutions"—a class of formal organizations purposively designed to change other institutions. HBS professor Rakesh Khurana and colleagues look at the Ford Foundation and its work reshaping America's graduate schools of management between 1952 and 1965 through funding of "centers of excellence" at a number of schools, including Harvard Business School. Key concepts include: The goal of this paper is to describe the structural characteristics and associated behaviors of dominating institutions, specifically the Ford Foundation, as they incite change within other institutions. Through its analysis and recommendations, the Ford Foundation reshaped America's graduate schools of management between 1952 and 1965 from a vocationally disparate, but "successful" field to a more academically and discipline-based orientation. The researchers anchor their work around two questions: What are the structural characteristics of a dominant institution? What key behaviors do dominant institutions use to allow them to significantly reshape an existing institution? The power of these institutions to change other institutions resided in their ability to broker personnel and practices across institutional sectors, elevating and legitimating particular practices, and providing resources in ways that increase the interdependence between the foundations and their beneficiaries. Large-scale institutional change does not occur in isolation, the findings suggest, but rather has to be understood in relation to what is happening in other institutional fields. Scholars studying institutional change should make an analytical distinction between the structure of the position of organizational actors in an institutional field and the interactions among the organizations in that field. Both are important in understanding the processes of institutional change. Closed for comment; 0 Comments.
- 28 Feb 2011
- Research & Ideas
The Importance of ‘Don’t’ in Inducing Ethical Employee Behavior
In a new study, HBS professors Francesca Gino and Joshua D. Margolis look at two ways that companies can encourage ethical behavior: the promotion of good deeds or the prevention of bad deeds. It turns out that employees tend to act more ethically when focused on what not to do. That can be problematic in firms where success is commonly framed in terms of advancement of positive outcomes rather than prevention of bad ones. Key concepts include: In general, there are two ways a company can encourage ethical conduct among its employees: either the promotion of good actions and outcomes or the prevention of bad ones. Through several experiments, the professors found that inducing a prevention focus will lead to ethical behavior more than inducing a promotion focus. In encouraging ethical behavior among employees, it behooves firms to consider focusing on preventing negative outcomes, not only in creating a code of ethics but also in setting goals and framing task directives. Closed for comment; 0 Comments.
- 24 Feb 2011
- Working Paper Summaries
Issuer Quality and Corporate Bond Returns
In research that could help regulators and policymakers tell if credit markets are becoming overheated, HBS professor Robin Greenwood and doctoral candidate Samuel G. Hanson suggest that measures of credit quality are just as important to monitor as the more traditional reviews of credit quantity. They also find that time-varying investor beliefs such as over-optimism, or tastes such as a heightened tolerance for risk, can contribute to fluctuations in credit quantity. Key concepts include: The researchers use measures of the quality of corporate debt issuers to forecast excess returns on corporate bonds. When issuer quality is low, corporate bonds subsequently underperform Treasuries. The work uncovers a striking degree of predictability and often forecasts significantly negative excess returns. The 2004-2007 credit boom and collapse was not unique, but rather part of a recurring historical pattern in which investors grant cheap credit to low quality borrowers during credit booms, and experience low returns when those borrowers ultimately default or spreads widen. The research results provide guidance on how we can tell if credit markets are becoming overheated, and suggests that looking at credit quantities alone may not be enough-policymakers might also want to consider the credit quality of debt market financing. Closed for comment; 0 Comments.
- 24 Feb 2011
- Research & Ideas
What’s Government’s Role in Regulating Home Purchase Financing?
The Obama administration recently proposed housing finance reforms to wind down Fannie Mae and Freddie Mac and bring private capital back to the mortgage markets. HBS professor David Scharfstein and doctoral student Adi Sunderam put forth a proposal to replace Fannie and Freddie and ensure a more stable supply of housing finance. Key concepts include: The two leading types of housing finance reform proposals are 1.) broad-based, explicit, properly priced government guarantees of mortgage-backed securities, and 2.) privatization. Properly priced guarantees would have little effect on mortgage interest rates relative to unguaranteed mortgage credit during normal times, and would expose taxpayers to moral-hazard risk with little benefit. Privatization reduces, but does not eliminate, the government's exposure to mortgage credit risk. It also leaves the economy and financial system exposed to destabilizing boom and bust cycles in mortgage credit. The main goal of housing finance reform should be financial stability, not the reduction of mortgage interest rates. The private market should be the main supplier of mortgage credit, but it should be carefully monitored using new approaches to regulating mortgage securitization. Moreover, the government should play a role of "guarantor of last resort" in periods of crisis. Closed for comment; 0 Comments.
- 23 Feb 2011
- First Look
First Look: Feb. 23
When your best customers are likely to defect ... Is delay strategic? ... Case: KFC in China. Closed for comment; 0 Comments.
- 22 Feb 2011
- Research & Ideas
The Most Important Management Trends of the (Still Young) Twenty-First Century
HBS Dean Nitin Nohria and faculty look backward and forward at the most important business trends of the young twenty-first century. Closed for comment; 0 Comments.
- 22 Feb 2011
- Research & Ideas
Most Popular Articles, Papers of the Decade
Celebrating our recent tenth anniversary, HBS Working Knowledge looks back to our most-read articles and working papers in the last decade. Closed for comment; 0 Comments.
- 18 Feb 2011
- Working Paper Summaries
A Behavioral Model of Demandable Deposits and Its Implications for Financial Regulation
Depositors are overconfident of their chances of recovering demandable deposits in a bank run. In a recent research paper, professor Julio J. Rotemberg reviews various government regulations available to be imposed on financial institutions—minimum capital levels, asset requirements, deposit insurance, and compulsory clawbacks—to understand how much they can help protect investors. Key concepts include: US households hold 11.4 percent of their financial assets in "transactions accounts" that are immediately available—about $3.5 trillion. Due to cognitive bias, people are overconfident about their position in line to withdraw their deposits in a bank run. Depositors who intend to spend far into the future hold demandable assets because they give investors the opportunity to change their portfolio at will on terms that are determined in advance. The paper offers a justification for various policies that governments use to regulate financial institutions, helping depositors who are too optimistic about how they will fare in a run. Closed for comment; 0 Comments.
- 17 Feb 2011
- Working Paper Summaries
Preference Heterogeneity and Optimal Capital Income Taxation
Professor Matthew Weinzierl and coauthors test the idea that savings, which is concentrated among highly skilled workers, ought to be taxed as part of an optimal tax policy. They find that the welfare gains from these taxes would be negligible. Key concepts include: Is taxing capital income (the return to saving) a good idea when highly skilled people value that income more than others? A baseline simulation finds that the optimal capital income taxes are modest--only 2 percent on average and 4.5 percent on high earners. Welfare gains from these optimal capital income taxes would be negligible. Closed for comment; 0 Comments.
- 16 Feb 2011
- Working Paper Summaries
Naivete and Cynicism in Negotiations and Other Competitive Contexts
In business and in life, it's important to strike a smart balance between naïveté and cynicism. Act too naïvely, and someone is bound to take advantage of you. Skew cynical, and you may miss out on new opportunities with good people. This paper discusses the decision errors inherent in leaning too far in either direction. Research was conducted by Chia-Jung Tsay, Lisa. L. Shu, and Max H. Bazerman of Harvard Business School. Key concepts include: Naïveté is more than a glut of trust. More broadly, naïve behavior refers to a failure to make the best decision, due to a lack of consideration of other people's strategic and behavioral perspectives. We are likely to make naïve decisions when we don't think through the likely future decisions of other parties. A cynic, on the other hand, may avoid a business transaction due to an assumption that the seller's self-interested motives will be harmful to him or her-even if logic shows that the deal would likely benefit both parties. When people withhold from trusting others, they usually lack opportunities to learn whether their trust would have reaped rewards. But when they offer their trust and are subsequently burned, they learn hard lessons about trust. This unbalanced feedback breeds cynicism. In laboratory studies, the best negotiators were those who had a tendency to think about the perspectives of others. However, most people lack sufficient perspective-taking ability. The researchers suggest that training mechanisms should be developed to increase that ability. Closed for comment; 0 Comments.
- 15 Feb 2011
- First Look
First Look: Feb. 15
Why tech leaders don't succeed in new eras … Economics of crime … Case: CEO succession at HP Closed for comment; 0 Comments.
- 14 Feb 2011
- Research & Ideas
Clay Christensen’s Milkshake Marketing
Many new products fail because their creators use an ineffective market segmentation mechanism, according to HBS professor Clayton Christensen. It's time for companies to look at products the way customers do: as a way to get a job done. Closed for comment; 0 Comments.
- 11 Feb 2011
- Working Paper Summaries
Leviathan as a Minority Shareholder: A Study of Equity Purchases by the Brazilian National Development Bank (BNDES), 1995-2003
There is a trend in many developing countries toward governments buying minority stakes in private companies. While there has been ample discussion on the wisdom of such actions, little has been said about how governments can make such interventions work better. This paper aims to fill that void, using data from the Brazilian National Development Bank (BNDES). Research was conducted by Sergio G. Lazzarini of the Insper Institute of Education and Research, and Aldo Musacchio of Harvard Business School. Key concepts include: Having a development bank as a shareholder alleviates the capital constraints that publicly traded companies face. Having a minority rather than a majority stake reduces the likelihood of political interference on the part of the development bank. However, this benefit may be thwarted when the bank targets companies in which the government already has close ties, such as relationships with state-owned business groups. Having BNDES as a minority shareholder does not appear to improve a company's access to loans. Governments considering minority equity stakes as an industrial policy tool should avoid pyramidal groups with poor governance. Closed for comment; 0 Comments.
- 10 Feb 2011
- Working Paper Summaries
The Dark Side of Creativity: Original Thinkers Can Be More Dishonest
Anyone who has spent significant time with artists knows that creative genius often comes with a dark side. This paper offers experimental evidence, specifically with regard to the relationship between creativity and unethical behavior. Research involving four experiments with university students was conducted by Francesca Gino of Harvard Business School and Dan Ariely of the Fuqua School of Business. Key concepts include: Creative students who showed a natural aptitude for divergent thinking tended to cheat more than linear thinkers. Creativity is a better predictor of unethical behavior than intelligence. Students who were deliberately induced to think creatively were, in turn, more likely to cheat than those who weren't primed to think outside the box. Creative people are more likely to cheat in part because their creativity helps them to come up with ingenious explanations to justify their unethical behavior. Open for comment; 0 Comments.
- 09 Feb 2011
- Working Paper Summaries
Sustainable Cities: Oxymoron or the Shape of the Future?
Among the issues looming large in the twenty-first century is a rapid rise in the number of people living in cities and a rapidly growing awareness of our threat to the Earth's environment. In response to both, a number of major corporations and various government bodies have teamed up to explore the idea of "ecocities" —urban communities ideally designed around the idea of environmental sustainability. This paper explores the idea by looking at several ecocities in progress in China, Abu Dhabi, South Korea, Finland, and Portugal. Research by professors Robert G. Eccles and Amy C. Edmondson, doctoral candidate Tiona Zuzul, and HBS research assistant Annissa Alusi. Key concepts include: About 90 percent of urban growth worldwide occurs in developing countries, which are projected to triple their existing base of urban areas between 2000 and 2030. The World Bank plans to team up with government, NGO, and private-sector organizations to help the development of nascent-stage ecocities. The ecocities in progress rely heavily on "smart infrastructure," or the use of centralized computer systems to manage urban systems such as the electric grid and city bus traffic patterns. Both Cisco Systems and IBM are heavily involved in the technological aspects of these initiatives. Financing is a huge challenge for ecocities, which typically require investment capital upwards of $35 billion. So far, the projects have relied on both public- and private-sector involvement, and all eight of the profiled ecocities are planning on eventual real-estate revenue to help offset the cost of development, although the degree to which they do varies according to the economic model of the project. Open for comment; 0 Comments.
From Social Control to Financial Economics: The Linked Ecologies of Economics and Business in Twentieth Century America
No transformation looks more consequential for the history of American higher education than the extraordinary rise of business schools and business degrees in the twentieth century. Marion Fourcade (UC Berkeley) and Rakesh Khurana (HBS) analyze the changing place of economics in American business education as reflected in the teaching of three elite business schools over the course of the twentieth century: the Wharton School (1900-1930), the Carnegie Tech Graduate School of Industrial Administration (post World War II), and the Graduate School of Business at the University of Chicago (1960s-present). Key concepts include: Wharton is an illustration of the earliest trends and dilemmas, when business schools found themselves caught between their business connections and their striving for moral legitimacy in higher education. The Carnegie Tech Graduate School of Industrial Administration reflects a new vision, starting in the 1950s, of the contribution of business to society with the rise of "management science"-a new formation that broke from the existing disciplinary system and sought to legitimatize itself through its hard-core technical capabilities. The University of Chicago's Graduate School of Business marks the decisive ascendancy of economics, and particularly financial economics, in business education over the other behavioral disciplines. This transformation helped produce and sustain new understandings of the nature of the firm, with far-reaching consequences for business practices and economic relations in society. Theories from each period provided a new language, and new categories of understanding and action, that not only became naturalized in the teachings of American business schools but also came to sustain and even instigate profound alterations in the nature of American corporations and markets-at least until the next series of tools, concepts, and business recipes came along. Closed for comment; 0 Comments.