First Look

First Look summarizes new working papers, case studies, and publications produced by Harvard Business School faculty. Readers receive early knowledge of cutting-edge ideas before they enter the mainstream of business practice. For complete details on faculty research, see our Working Papers section.

December 9, 2008

"For a century and more, companies have ventured abroad only after establishing themselves at home," writes HBS professor Daniel J. Isenberg in this month's issue of Harvard Business Review. "Standing conventional theory on its head, start-ups now do business in many countries before dominating their home markets."

His article, "The Global Entrepreneur," describes how and why an increasing number of entrepreneurs think across borders from the earliest stages of a start-up. According to Isenberg, global entrepreneurs should be able to express their rationale for going global rather than local; build alliances from a position of relative weakness; manage the supply chain wisely; and create a cohesive multinational culture.

"Being global may not be a pursuit for the fainthearted, but even start-ups can thrive by using distance to gain competitive advantage," writes Isenberg.

Two cases this week look at rescuing a business alliance. The first, "Hrad Technika," describes a problem from the position of an IT services provider, while "Tegan c.c.c." examines the same issue from the customer's point of view. Both cases in tandem help readers learn the essentials of managing IT outsourcing projects.

 

Working Papers

An Optimal Lower Bound for Anonymous Scheduling Mechanisms

Abstract

We consider the problem of designing truthful mechanisms to minimize the makespan on m unrelated machines. In their seminal paper, Nisan and Ronen [14] showed a lower bound of 2 and an upper bound of m, thus leaving a large gap. They conjectured that their upper bound is tight but were unable to prove it. Despite many attempts that yield positive results for several special cases, the conjecture is far from being solved: the lower bound was only recently slightly increased to 2.61 [5, 10], while the best upper bound remained unchanged. In this paper we show the optimal lower bound on truthful anonymous mechanisms: no such mechanism can guarantee an approximation ratio better than m. This is the first concrete evidence to the correctness of the Nisan-Ronen conjecture, especially given that the classic scheduling algorithms are anonymous, and all state-of-the-art mechanisms for special cases of the problem are anonymous as well.

Download the paper: http://www.hbs.edu/research/pdf/09-070.pdf

A Noncooperative Support for Equal Division in Estate Division Problems

Abstract

We consider estate division problems a generalization of bankruptcy problems. We show that in a direct revelation claim game, if the underlying division rule satisfies efficiency, equal treatment of equals, and weak order preservation, then all (pure strategy) Nash equilibria induce equal division. Next, we consider division rules satisfying efficiency, equal treatment of equals, and claims monotonicity. For claim games with at most three agents, again all Nash equilibria induce equal division. Surprisingly, this result does not extend to claim games with more than three agents. However, if nonbossiness is added, then equal division is restored.

Download the paper: http://www.hbs.edu/research/pdf/09-069.pdf

 

Cases & Course Materials

The Big Easy, Not So Easy

Harvard Business School Case 208-068

Enterprise Community Partners must determine whether to rebuild the Lafitte housing projects in hurricane-ravaged New Orleans and, if so, how to mitigate the risks. Set in January 2007, more than a year after Hurricane Katrina made landfall, the case examines how Enterprise has a number of environmental, contractual, reputational, and legal risks to overcome in making the project a success. Given these risks, Enterprise is unsure whether to rebuild in New Orleans at all and whether to renovate the site or redevelop it into a mixed-income community.

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The Big Easy, Not So Easy: The Letter

Harvard Business School Supplement 208-125

A short, supplemental case to "The Big Easy, Not So Easy" (208-068). Doris Koo must respond to new challenges at Lafitte in New Orleans.

Purchase the supplement:
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China's Financial Markets: 2007

Harvard Business School Note 208-147

Provides an overview of capital markets in mainland China in 2007, evaluating the up-to-date performance of key components of the markets, highlighting concerns as China strives to modernize its financial system to meet global competition and support its fast growing economy.

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The Concept of Development Strategy

Harvard Business School Note 609-045

No abstract is available at this time.

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Financial Crisis in Asia: 1997–1998 (Abridged)

Harvard Business School Case 709-004

What caused the 1997–98 Asia Crisis: Asian nations' poor economic management, international financial contagion, close "crony" relations between local politicians and capitalists? This case examines how the crisis erupted in Thailand and spread in a chain of events that no one—neither Asian financial authorities nor Western economists—had foreseen. The crisis raises questions about how competently financial institutions, such as mutual funds, managed their global capital investments. It raises questions about how effective the International Monetary Fund's package of reforms was—and to what extent the IMF acted in the interest of Wall Street rather than developing nations. And the crisis raises questions about the development policies of Asian nations: Did too-close "crony" relations between politicians and owners of major banks or firms pave the way for crisis?

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Hrad Technika

Harvard Business School Case 609-039

Examines a struggling IT outsourcing project from the perspective of the IT services provider—Hrad Technika. When used in conjunction with “Tegan c.c.c.” (9-609-038), it provides an opportunity to see both sides of the issue. When Hrad enters into a contract to create a new accounts payable system for Welsh toy distributor Tegan, the outsourcing firm from the Czech Republic views the project as another step in its progression towards delivering higher value services. Unfortunately, the project goes poorly, and Hrad is left with the decision of how to rescue the relationship and avoid a similar problem in the future. The case allows the examination of how to manage an outsourcing project and permits a general discussion about IT outsourcing.

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Miles Davis: Kind of Blue

Harvard Business School Case 609-050

Examines how successful companies can "jump to the next S-curve" through an analogy to the life's work of Miles Davis, especially his paradigm-shattering Kind of Blue album in 1959. Students consider how and why Davis, who had already proven he was tops in his field, created a new disruptive innovation in the field of jazz, in the process creating the most commercially successful jazz album of all time. The case also delves deeply into the creative process and Davis's creative leadership and ability to cultivate talent (such as that of saxophonist John Coltrane)—many of the great jazz musicians of the 20th century came out of the informal "Miles Davis University."

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NEC Electronics

Harvard Business School Case 209-001

Why do shares in NEC Electronics, a publicly listed subsidiary of Japan conglomerate NEC, trade at a discount to their fundamental value? Can Perry Capital, a U.S. hedge fund, restructure this subsidiary and generate significant returns? This case provides students with an opportunity to analyze Perry's decision to invest in NEC Electronics. In doing so, it asks for the reasons that NEC might take actions that destroy value and shift value away from NECE's minority shareholders. The events covered allow for a discussion of how ownership concentration constrains restructuring alternatives, how hedge fund investors might confront controlling shareholders, and how the mispricing of agency costs can give rise to ownership structures that allow for minority shareholder expropriation.

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The New York Jets—A West Side Story

Harvard Business School Case 207-027

In 2005, Jay Cross, New York Jets president, must decide how to proceed with finding a new home for the football team he heads after New York's Public Authorities Control Board rejects a $1.4 billion plan to build the New York Sports and Convention Center (NYSCC) on the West Side of Manhattan. If built, the NYSCC would have served as the home for the Jets and possibly the opening ceremonies for the 2012 Summer Olympic Games. Examines the roles that various constituencies played in the development process.

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Note on Accountability in the U.S. Health Care System

Harvard Business School Note 308-111

This note explains how health care providers, health insurers, and consumers are held accountable for their performance and the entrepreneurial opportunities thus created.

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Shaklee Corporation: Corporate Social Responsibility

Harvard Business School Case 509-031

Having bought Shaklee Corporation from Yamanouchi, Roger Barnett, its owner and CEO, wrestled with the question of how to grow the company and its reputation for environmental sustainability. In addition to preserving the "network marketing" nature of its sales channel (because it creates jobs and entrepreneurs), Barnett wished to take the business model to sub-Saharan Africa and South Asia.

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Tegan c.c.c.

Harvard Business School Case 609-038

Examines a struggling IT outsourcing project from the perspective of the customer—Tegan. It should be used in conjunction with “Hrad Technika” (9-609-039), which illustrates the supplier's point of view. When Tegan, a Welsh toy distributor, outsources the development of a new accounts payable system to Hrad Technika, a growing outsourcing firm from the Czech Republic, Tegan believes they are getting a problem off their hands. Unfortunately, the project goes poorly, and Tegan is left with the decision of how to prevent a failure in accounts payable from halting the entire company's operations. The case allows the examination of how to manage an outsourcing project and permits a general discussion about IT outsourcing.

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http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=609038

West Wacker Drive: To Build or Not to Build?

Harvard Business School Case 207-028

In 1980, Thomas J. Klutznick, president of a Chicago-based development company, was considering whether he should build a Class A building on a second-rate site outside the Central Loop or not. He had a promising design, but the economic conditions, concurrent construction boom in other prime locations in Chicago Downtown, and high interest rates suggested he should think long and hard before committing the company's resources to this speculative undertaking.

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Publications

Mediators in Position Auctions

Abstract

A mediator is a reliable entity, which can play on behalf of agents in a given game. A mediator however can’t enforce the use of its services, and each agent is free to participate in the game directly. In this paper we introduce a study of mediators for games with incomplete information and apply it to the context of position auctions, a central topic in electronic commerce. VCG position auctions, which are currently not used in practice, possess some nice theoretical properties, such as the optimization of social surplus and having dominant strategies. These properties may not be satisfied by current position auctions and their variants. We therefore concentrate on the search for mediators that will allow to transform current position auctions into VCG position auctions. We require that accepting the mediator services and reporting honestly to the mediator, will form an ex post equilibrium, which satisfies the following rationality condition: an agent's payoff can’t be negative regardless of the actions taken by the agents who did not choose the mediator's services, or by the agents who report false types to the mediator. We prove the existence of such desired mediators for the next-price (Google-like) position auctions, as well as for a richer class of position auctions, including k-price position auctions, k>1. For k=1, the self-price position auction, we show that the existence of a such mediator depends on the tie-breaking rule used in the auction.

On the Value of Correlation

Abstract

Correlated equilibrium (Aumann, 1974) generalizes Nash equilibrium to allow correlation devices. Aumann showed an example of a game, and of a correlated equilibrium in this game, in which the agents' surplus (expected sum of payoffs) is greater than their surplus in all mixed-strategy equilibria. Following the idea initiated by the price of anarchy literature (Koutsoupias & Papadimitriou, 1999; Papadimitriou, 2001) this suggests the study of two major measures for the value of correlation in a game with non-negative payoffs: the ratio between the maximal surplus obtained in a correlated equilibrium to the maximal surplus obtained in a mixed-strategy equilibrium—we refer to this ratio as the mediation value; and the ratio between the maximal surplus to the maximal surplus obtained in a correlated equilibrium—we refer to this ratio as the enforcement value. In this work we initiate the study of the mediation and enforcement values, providing several general results on the value of correlation as captured by these concepts. We also present a set of results for the more specialized case of congestion games (Rosenthal, 1973), a class of games that received a lot of attention in the recent literature.

The Teaching of Strategy: From General Manager to Analyst and Back Again?

Abstract

Courses in strategy are an outgrowth of the business policy course first taught at Harvard Business School in 1912. This article examines how the teaching of a course concerned with the development and implementation of the goals and policies of a firm changed during three periods in the postwar period: first, with the introduction of the concept of corporate strategy; second, with the evolution of faculty interest in a concept of competitive strategy more closely grounded in industrial organization economics; and third, with the development of a new course in entrepreneurial management more closely linked to business policy's concerns with the general management challenges facing the leaders of modern firms. This history of the course is linked to changes in information technology, financial markets, and the managements of firms as well as related changes in the markets for students and faculty.

The Political Economy of 'Natural' Disasters

Abstract

Natural disasters occur in a political space. Although events beyond our control may trigger a disaster, the level of government preparedness and response greatly determines the extent of suffering incurred by the affected population. We use a political economy model of disaster prevention, supported by case studies and preliminary empirics to explain why some governments prepare well for disasters and others do not. We show how the presence of international aid distorts this choice and increases the chance that governments will under-invest. Policy suggestions that may alleviate this problem are discussed.

Download the HBS working paper: http://www.hbs.edu/research/pdf/08-040.pdf

The Impact of Shareholder Activism on Financial Reporting and Compensation: The Case of Employee Stock Options Expensing

Abstract

In this paper we examine the economic consequences of over 150 shareholder proposals to expense employee stock options (ESO) submitted during the proxy seasons of 2003 and 2004—the first case where the SEC has allowed an accounting matter to be subject to an advisory vote at an annual meeting. We find evidence suggesting that ESO expensing shareholder proposals affected accounting and compensation choices. With respect to accounting choices, we find that (i) targeted firms were more likely to adopt ESO expensing relative to a control sample of S&P 500 firms; (ii) within targeted firms, the likelihood of adoption increases in the degree of voting support for the proposal; (iii) non-targeted firms were more likely to adopt ESO expensing when a peer firm was targeted by a proposal. With respect to the effect on compensation practices, we find that (i) targeted firms where the proposal was approved experienced a decrease in the level of CEO compensation relative to the control sample of S&P 500 firms; and (ii) within targeted firms, the degree of voting support for the proposal was associated with a decrease in the level of CEO compensation and a decrease in the use of ESO in CEO compensation.

A Review of U.S. and Canadian Biomass Supply Studies

Abstract

An improved understanding of lignocellulosic biomass availability is needed to support proposed expansion in biofuel production. Fifteen studies that estimate availability of lignocellulosic biomass quantities in the U.S. and/or Canada are reviewed. Sources of differences in study methods and assumptions and resulting biomass quantities are elucidated. We differentiate between inventory studies, in which quantities of biomass potentially available are estimated without rigorous consideration of the costs of supply, versus economic studies, which take into consideration various opportunity costs and competition. The U.S. economic studies, which included reasonably comprehensive sets of biomass categories, estimate annual biomass availability to range from 6 million to 577 million dry metric tonnes (dry t), depending on offered price, while estimates from inventory studies range from 190 million to 3,849 million dry t. The Canadian inventory studies, which included reasonably comprehensive sets of biomass categories, estimate availability to range from 64 million green t to 561 million dry t. The largest biomass categories for the U.S. are energy crops and agricultural residues, while for Canada they are expected to be energy crops and logging residues. The significant differences in study estimates are due in large part to the number of biomass categories included, whether economic considerations are incorporated, assumptions about energy crop yields and land areas, and level of optimism of assumptions of the study.

The Global Entrepreneur

Abstract

For over a century, start-ups began by focusing on their home markets. More and more, however, are now being born globally—chasing opportunities created by distance, learning to manage faraway operations, and hunting for the planet's best manufacturing locations, brightest talent, most willing investors, and most profitable customers wherever they may be—from day one. That's not easy. In his research, Harvard professor Isenberg has found that global start-ups face three challenges. First are the logistical problems and psychic barriers created by distance and by differences in culture, language, education systems, religion, and economic development levels. Even something so basic as accommodating the world's various workweek schedules can put a strain on a small start-up's staff. Second is managing the challenges (and opportunities) of context—that is, the different nations' political, regulatory, judicial, tax, and labor environments. Third, like all new ventures, global start-ups must find a way to compete with bigger incumbents while using far fewer resources. To succeed, Isenberg has found, global entrepreneurs must cultivate four competencies: They must clearly articulate their reasons for going global, learn to build alliances with more powerful partners, excel at international supply chain management, and create a multinational culture within their organization. Entrepreneurs shouldn't fear the fact that the world isn't flat. Being global may not be a pursuit for the fainthearted, but even start-ups can thrive by using distance to gain competitive advantage.

Purchase the article: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=R0812J

Reinventing Your Business Model

Abstract

Why is it so difficult for established companies to pull off the new growth that business model innovation can bring? Here's why: They don't understand their current business model well enough to know if it would suit a new opportunity or hinder it, and they don't know how to build a new model when they need it. Drawing on their vast knowledge of disruptive innovation and experience in helping established companies capture game-changing opportunities, consultant Johnson, Harvard Business School professor Christensen, and SAP co-CEO Kagermann set out the tools that executives need to do both. Successful companies already operate according to a business model that can be broken down into four elements: a customer value proposition that fulfills an important job for the customer in a better way than anything competitors offer; a profit formula that lays out how the company makes money delivering the value proposition; and the key resources and key processes needed to deliver that proposition. Game-changing opportunities deliver radically new customer value propositions: They fulfill a job to be done in a dramatically better way (as P&G did with its Swiffer mops), solve a problem that's never been solved before (as Apple did with its iPod and iTunes electronic entertainment delivery system), or serve an entirely unaddressed customer base (as Tata Motors is doing with its Nano—the $2,500 car aimed at Indian families who can't afford any other type of car and usually use motorcycles to get around). Doing so doesn't always require a new business model, but a new model is called for under certain conditions. It is often needed to leverage a new technology (as in Apple's case); is generally required when the opportunity addresses an entirely new group of customers (as with the Nano); and is surely in order when an established company needs to fend off a successful disruptor (as the Nano's competitors will now need to do).

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Clusterentwicklung als Element lokaler und regionaler Wirtschaftsentwicklung - internationale Erfahrungen

No abstract is available at this time.

Which Kind of Collaboration Is Right for You?

Abstract

Nowadays, virtually no companies innovate alone. Firms team up with a variety of partners, in a wide number of ways, to create new technologies, products, and services. But what is the best way to leverage the power of outsiders? To help executives answer that question, Pisano, of Harvard Business School, and Verganti, of Politecnico di Milano, developed a simple framework focused on two questions: Given your strategy, how open or closed should your network of collaborators be? And who should decide which problems to tackle and which solutions to adopt? There are four basic modes of collaboration, say the authors. An elite circle is a closed network with a hierarchical governance: One company selects the participants, defines the problem, and chooses the solution. For instance, Alessi, an Italian home-products company, invited 200 outside experts in postmodern architecture to contribute ideas for new home-product designs. An innovation mall is hierarchical but open: Anyone can post a problem or propose solutions in it, but the company posting the problem chooses the solution. An example is InnoCentive.com, an eBay-like site where companies post scientific challenges. An innovation community is open and decentralized: Anyone can propose problems, offer solutions, and decide which ideas to use—as happens in the open-source software community Linux. A consortium is a private group of participants that operate as equals and jointly select problems, decide how to conduct work, and choose solutions. IBM has set up a number of consortia with other companies to develop next-generation semiconductor technologies. No one approach is superior; each involves strategic trade-offs. When choosing among modes, firms must weigh their advantages and challenges and assess which will work best with their strategy, capabilities, structure, and assets.

Purchase the article: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=R0812F

Power to the People

Abstract

One of the most confounding global problems today is the skyrocketing cost of food. Prices for staple crops such as rice and wheat have more than doubled since 2006, putting an enormous strain on the 1.2 billion people living on a dollar a day or less. Non-governmental organizations (NGOs) and relief agencies are on the front lines of this global crisis, distributing food and other forms of assistance to the hardest-hit victims. But food handouts may be the last thing that poor countries need right now. Instead of more advice or another bag of rice, the poor should be given relief vouchers, says Eric Werker, assistant professor at Harvard University Business School.

Purchase the article: http://www.foreignpolicy.com/ users/login.php?story_id=4510&URL=http://www.foreignpolicy.com/ story/cms.php?story_id=4510