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.

February 3, 2009

Performance review season always comes around quickly, doesn't it? Are your goals specific and challenging enough? Or, are they perhaps too specific and too challenging, and thus potentially harmful to you and the organization?

New research suggests that goal setting is a double-edged sword, and, if not well-calibrated, it can cause more pain than gain. According to HBS professor Max H. Bazerman and colleagues, "The use of goal setting can degrade employee performance, shift focus away from important but non-specified goals, harm interpersonal relationships, corrode organizational culture, and motivate risky and unethical behaviors." Their working paper, "Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting," [PDF] offers a cautious approach to goal setting that managers should bear in mind throughout the year.

Other faculty work this week highlights a working paper on the dynamic process of team learning ("Virtual Team Learning: Reflecting and Acting, Alone or With Others"); a forthcoming book about public efforts—some of them misguided—to promote entrepreneurship (The Boulevard of Broken Dreams); and a case about ameliorating slum conditions in Kenya ("Kibera and the Kenya Slum Upgrading Project").

 

Working Papers

Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting

Abstract

Goal setting is one of the most replicated and influential paradigms in the management literature. Hundreds of studies conducted in numerous countries and contexts have consistently demonstrated that setting specific, challenging goals can powerfully drive behavior and boost performance. Advocates of goal setting have had a substantial impact on research, management education, and management practice. In this article, we argue that the beneficial effects of goal setting have been overstated and that systematic harm caused by goal setting has been largely ignored. We identify specific side effects associated with goal setting, including a narrow focus that neglects non-goal areas, a rise in unethical behavior, distorted risk preferences, corrosion of organizational culture, and reduced intrinsic motivation. Rather than dispensing goal setting as a benign, over-the-counter treatment for motivation, managers and scholars need to conceptualize goal setting as a prescription-strength medication that requires careful dosing, consideration of harmful side effects, and close supervision. We offer a warning label to accompany the practice of setting goals.

Download the paper: http://www.hbs.edu/research/pdf/09-083.pdf

Virtual Team Learning: Reflecting and Acting, Alone or With Others

Abstract

This paper examines virtual team learning in new product development situations. New product development activities manifest novelty, uncertainty and complexity, presenting an extreme need for learning in the course of the work. We present data from an exploratory study of learning processes in globally dispersed new product development teams. These qualitative data are used to investigate components of team learning previously highlighted in the team learning literature—namely reflection-oriented and action-oriented behaviors—and to examine the boundaries of these learning behaviors. We find that effective virtual teams, like co-located teams, engage in both reflective and action-oriented learning behaviors. However, the virtual context highlights distinct participation strategies in teams' learning patterns, which aim to leverage deep, specialist knowledge, on one hand, or seek to integrate diverse knowledge, on the other hand. Moreover, our findings suggest that, in the virtual setting, the boundary of team membership is not centrally associated with different learning behaviors and outcomes, as argued in other team learning research. Instead, virtual team learning behaviors are likely to be shaped by boundaries that delimit timely access to relevant knowledge and skill. In conclusion, we discuss implications for future virtual team learning research.

Download the paper: http://www.hbs.edu/research/pdf/09-084.pdf

Authority versus Persuasion

Abstract

This paper studies a principal's trade-off between using persuasion versus using interpersonal authority to get the agent to "do the right thing" from the principal's perspective (when the principal and agent openly disagree on the right course of action). It shows that persuasion and authority are complements at low levels of effectiveness but substitutes at high levels. Furthermore, the principal will rely more on persuasion when agent motivation is more important for the execution of the project, when the agent has strong intrinsic or extrinsic incentives, and, for a wide range of settings, when the principal is more confident about the right course of action.

Download the paper: http://www.hbs.edu/research/pdf/09-085.pdf

 

Publications

Quanto Sei (a)Morale? Leadership Etica E Psicologia Della Decisione

Abstract

A collection of papers on ethics, translated into Italian.

Social Decision Making: Social Dilemmas, Social Values, and Ethical Judgments

Abstract

This book, in honor of David Messick, is about social decisions and the role cooperation plays in social life. Noted contributors who worked with Dave over the years will discuss their work in social judgment, decision making, and ethics which was so important to Dave.

The Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do About It

Abstract

In response to the financial crisis, governments are being far more aggressive in intervening to promote economic activity, a trend that shows little tendency of alleviating. This book looks at the experiences of governments in encouraging entrepreneurs and venture capitalists across many decades and continents. Certainly, the dollars spent each year on these programs—while significant on an absolute basis—pale when compared to defense and healthcare expenditures, not to mention the costs incurred recently rescuing failing banks and automakers, among others. But the picture changes when we consider the long-run consequences of policies that facilitate or hinder the development of a venture sector: that is, the impact on national prosperity that a vital entrepreneurial climate can have. In the long run, the significance of these policies looms much larger. Much of the discussion in the book has focused on specific policies and analyses. From the discussion, five consistent themes emerge:

  • Governments around the world today are seeking to promote entrepreneurial and venture capital activity, employing a variety of "stage setting" and direct strategies.
  • These steps are sensible, given the historical record and theoretical arguments regarding the importance of such interventions in the development of entrepreneurial regions and industries.
  • But these efforts are challenging. Governments cannot dictate how a venture market will evolve, and "top-down" efforts are likely to be unsuccessful.
  • The same common flaws doom far too many programs. These reflect both poor design—reflecting a lack of understanding of the entrepreneurial process—and problematic implementation.
  • Government must play a careful balancing act, combining an understanding of the necessity of playing a catalytic role with an awareness of the limits of its ability to stimulate the entrepreneurial sector.
  • If policy makers can apply these key lessons, many, if not most, of the sagas of waste and disappointment that we have highlighted could be avoided. Entrepreneurs could find a more hospitable climate, and we would all benefit.

Barriers to Acting in Time on Energy, and Strategies for Overcoming Them

No abstract is available at this time.

Interactivity's Unanticipated Consequences for Markets and Marketing

Abstract

The digital interactive transformation in marketing is not unfolding, as some thought it would, on the model of direct marketing. That model anticipated that marketing, empowered by digital media using rich profiling data, would intrude ever more deeply and more precisely into consumer lives than broadcast media had been able to. Instead, the transformation is unfolding on a model of consumer empowerment, in which consumers use digital media to communicate with one another and deal with marketing's intrusions, showing none of the passivity displayed by mass media audiences. This paper categorizes five roles for the interactive consumer and draws implications for marketing practice. It concludes that the balance of power over marketplace meaning-making is shifting from marketer to consumer to the extent that media usage migrates from broadcasting to interactivity. The new marketplace rewards more participatory, more sincere, and less directive marketing styles than the old.

See No Evil: Why We Fail to Notice Unethical Behavior

Abstract

It is common for people to be more critical of others' ethical choices than of their own. This chapter explores those remarkable circumstances in which people see no evil in others' unethical behavior. Specifically, we explore 1) the motivated tendency to overlook the unethical behavior of others when we recognize the unethical behavior would harm us; 2) the tendency to ignore unethical behavior unless it is clear, immediate, and direct; 3) the tendency to ignore unethical behavior when ethicality erodes slowly over time; and 4) the tendency to assess unethical behaviors only after the unethical behavior has resulted in a bad outcome, but not during the decision process.

On the General Relativity of Fiscal Language

Abstract

A century ago, everyone thought time and distance were well defined physical concepts. But neither proved absolute. Instead, measures/reports of time and distance were found to depend on one's reference point, specifically one's direction and speed of travel, making our apparent physical reality, in Einstein's words, "merely an illusion." Like time and distance, standard fiscal measures, including deficits, taxes, and transfer payments, depend on one's reference point/reporting procedure/language/labels. As such, they, too, represent numbers in search of concepts that provide the illusion of meaning where none exists. This paper, dedicated to our dear friend David Bradford, provides a general proof that standard and routinely used fiscal measures, including the deficit, taxes, and transfer payments, are economically ill-defined. Instead these measures reflect the arbitrary labeling of underlying fiscal conditions. Analyses based on these and derivative measures, such as disposable income, private assets, and personal saving, represent exercises in linguistics, not economics.

Technological Innovation and Organizations

Abstract

In this essay, we review the key features of the literature on innovation and organizational structure. We highlight the key areas where work has been undertaken, as well as the limitations of the literature to date.

The Performance of Reverse Leveraged Buyouts

Abstract

Reverse leveraged buyouts (RLBOs) have received increased public scrutiny but attracted little systematic study. We collect a comprehensive sample of 496 RLBOs between 1980 and 2002 and examine three- and five-year stock performance of these offerings. RLBOs appear to consistently outperform other IPOs and the stock market as a whole, with economically and statistically meaningful positive returns. There is no evidence of a deterioration of returns over time, despite the growth of the buyout market: RLBOs performed strongly in the late 1980s, the mid-1990s, and the 2000s. Large RLBOs that are backed by private equity firms with more capital under management perform better. We also find the so-called quick flips—when private equity firms sell off an investment within a year after acquisition—underperform.

Contractibility and Contract Design in Strategic Alliances

Abstract

We analyze how variations in contractibility affect the design of contracts in the context of biotechnology research agreements. A major concern of firms financing biotechnology research is that the R&D firms might use the funding to subsidize other projects or substitute one project for another. We develop a model based on the property-rights theory of the firm that allows for researchers in the R&D firms to pursue multiple projects. When research activities are noncontractible, we show that it is optimal for the financing company to obtain the option right to terminate the research agreement while maintaining broad property rights to the terminated project. This option right induces the biotechnology firm researchers not to deviate from the proposed research activities. The contract prevents opportunistic exercise of the termination right by conditioning payments on the termination of the agreement. We test the model empirically using a new data set of 584 biotechnology research agreements. We find that the assignment of termination and broad licensing rights to the financing firm occurs in contractually difficult environments in which there is no specifiable lead product candidate. We also analyze how the contractual design varies with the R&D firm's financial constraints and research capacities and with the type of financing firm. The additional empirical results allow us to distinguish the property-rights explanation from alternative stories, based on uncertainty and asymmetric information about the project quality or research abilities.

Secrets of the Academy: The Drivers of University Endowment Success

Abstract

University endowments have received much attention recently for their superior investment returns compared with other institutional investors. This study documents trends in college and university endowment returns and investments in the United States between 1992 and 2005 using data on more than a thousand schools. Such endowments have generally performed well over this time period, with a median growth rate of 7.4% per year and median return of 6.9%. This sector has been dominated both in size and performance by the endowments of elite universities such as the Ivy League schools. The top 20 endowments grew more than 9% annually on a real basis between 1992 and 2005. As of 2007, the two largest endowments, belonging to Harvard and Yale, have grown to $35 billion and $22 billion in size, respectively. Much of the growth in endowment size has been driven by investment performance. As we will show in the paper, the top endowments posted impressive returns in 2005, averaging a net real return of 12.3%, compared to 4.4% posted by the S&P 500 index in the same year. We investigate the underlying drivers of these high returns and show that performance is related to the size of endowment, the quality of the student body, and the use of alternative investments. We caution ordinary investors that mimicking the strategies of the top endowments would not necessarily result in similar returns.

The Empirical Impact of Intellectual Property Rights on Innovation: Puzzles and Clues

Abstract

Economists have long seen the patent system as a crucial lever through which policymakers affect the speed and nature of innovation in the economy. It is not surprising, then, that the profound changes which have roiled the global patent system over the past 20 years are attracting increasing attention from the economics profession. A critical question relates to the impact of these shifts: to what extent do they really affect the pace of innovative discovery and diffusion? Much of the theoretical economics literature, such as Richard Gilbert and Carl Shapiro (1990), has assumed an unambiguous relationship between the strength of patent protection and the rate of innovation. This assumption has been relaxed in a line of work on sequential innovation, beginning with Suzanne Scotchmer and Jerry Green (1990). This research addresses this question by examining the impact of major patent policy shifts in 60 nations over the past 150 years. I examine the changes in patent applications by residents of the nation undertaking the policy change. While I tabulate domestic filings by residents and non-residents alike, confounding factors may influence this measure. Thus, I also examine filings made by residents of the nation undertaking the policy change in a nation with a relatively constant patent policy, Great Britain.

Getting Known by the Company You Keep: Publicizing the Qualifications and Former Associations of Skilled Employees

Abstract

When product quality cannot be ascertained in advance of purchase, producers must convince relevant audiences that they are worthy of consideration as quality players. We propose that quality-oriented producers will selectively publicize information about their skilled employees in anticipation of signaling benefits, which include the accrual of visibility and the projection of quality-based identities. We validate our perspective on publicizing affiliation information by analyzing how a sample of Australian wine producers publicized specific career information about their skilled employees (i.e., their winemakers), including the names of certain former employers of these individuals.

Yes, But Weak States Can Be Coaxed Creatively

No abstract is available at this time.

Read the article and post a comment: http://creativecapitalism.typepad.com/ creative_capitalism/eric_werker/

 

Cases & Course Materials

Arcapita-2002

Harvard Business School Case 209-023

tIn 2002, Arcapita Bank, B.S.C., then known as First Islamic Investment Bank, or FIIB, faced a liquidity crunch. Aracapita offered Islamic-compliant private equity, real estate, and venture capital products. In the wake of the 9/11 terrorist attack, however, Islamic banking was an endangered species in the U.S. Should Arcapita change its business model, and how should it finance its growing capital needs?

Purchase the case:

http://harvardbusinessonline.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=209023

Hema Hattangady and Conzerv

Harvard Business School Case 409-022

tThis case describes the evolution of a fast-growing Indian energy firm. It illustrates both leadership change as Hema is evolving as a leader, as well as how organization architecture (culture, systems, incentives, and human resources) is evolving. The case highlights a set of decisions Hema makes to build the firm.

Purchase the case:
http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=409022

Kibera and the Kenya Slum Upgrading Project (A)

Harvard Business School Case 207-017

tKenya's Minister of Housing faces tremendous pressures in dealing with the pervasive housing troubles in his country. Kibera is the largest slum in Africa and home to more than 800,000 residents, yet only measures two square kilometers, roughly half the size of Manhattan's Central Park. Most homes are single-story structures and the density is 3,000 persons per hectare (compared to 43 in London, 100 in New York City, and 143 in Tokyo), making this one of the most densely populated areas in the world. The slum's living conditions are abysmal by Western standards and gets little to no support from the local government due to the entrenched bureaucracy that has seemingly misaligned interests in the slum.

Purchase the case:
http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=207017

Purchase the supplement: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=207018

Olam International

Harvard Business School Case 509-002

tIn 20 years, Sunny Verghese had built Singapore-based Olam International from a small Nigerian export company into a $5 billion global leader in agricultural commodities with a core competence in Africa. Olam's growth had come by pursuing product and geographic adjacencies, and its "farm gate to factory gate" approach had been extended to 14 agricultural products, including cashews, sesame, cocoa, and coffee. In mid-October 2008, Olam's stock price declined to $1 a share from a high of $3.71 in early 2007 as part of the global economic crisis. Verghese had to decide whether to change the firm's strategy based on the new economic environment.

Purchase the case:
http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=509002

Taylor Fresh Foods

Harvard Business School Case 509-008

tIn 13 years, Bruce Taylor had built Taylor Fresh Foods into a $1 billion company and the top supplier of salads to the U.S. food service industry and to supermarket deli departments. In 2008, he was convinced that the time was right to make a big push in the fresh food area to satisfy consumers that were demanding more convenient, natural, good-tasting, and locally-grown foods. Taylor needed an action plan to make Taylor Fresh the industry leader before his competition woke up to the opportunity that lay before them all.

Purchase the case:
http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=509008

Youth Villages

Harvard Business School Case 309-007

tTennessee-based nonprofit Youth Villages had an impressive record of serving emotionally and behaviorally troubled youth and their families, with higher success rates and lower costs than most child services providers. Yet expanding to offer its services on a broader scale proved challenging.

Purchase the case:
http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=309007