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.

March 23

To become an entrepreneur, it helps to surround yourself with like-minded colleagues. As HBS professor Ramana Nanda and coauthor Jesper B. Sørensen show, potential entrepreneurs benefit enormously not just from the practical information and resources that entrepreneurial colleagues provide. The encouragement and positive outlook that is part of such a work atmosphere is also important socialization, and can inspire employees in the direction of entrepreneurship. As Nanda and Sørensen argue in a forthcoming article in Management Science, "coworkers can increase the likelihood that an individual will perceive entrepreneurial opportunities as well as increase his or her motivation to pursue those opportunities."

Offering a historical view on multinationals in developing countries, a working paper this week by professor Geoffrey Jones outlines the tradeoffs between opportunity and risk that such companies experience. These tradeoffs needed to factor in the prevailing political economy, the market and resources available, and competition from local firms. He explains more in Multinational Strategies and Developing Countries in Historical Perspective.

Among cases this week, "A Letter from Prison" details correspondence between a graduate student and an executive serving a seven-year prison sentence for financial fraud.

 

Publications

"From Visible Harm to Relative Risk: Centralization and Fragmentation of Pharmacovigilance

Abstract

Adverse drug reactions pose distinct but potentially catastrophic risks to patients, physicians, pharmaceutical firms, and regulators. Between the early 1960s and the present, national systems were built to collect, standardize, and respond to individual reports of side effects, with the Food and Drug Administration (FDA) playing the central role in the United States. In recent years, however, this centralized approach to the collection and analysis of adverse events through doctor-initiated case reports has been superseded by innovative, though episodic, pharmacoepidemiological studies of large databases that identify the probability of side effects in a population. This chapter advances a historical comparison of these two methods-individual case reports and population meta-analysis-and draws attention to the fragmentation of the institutional basis for assessing pharmaceutical risk. Our analysis of the evolution of techniques for identifying and responding to adverse drug reactions suggests that only government regulators are in a position to integrate case report and statistical analysis. Despite the appeal of fragmented post-market drug safety studies, centralization may be necessary to achieve faster and better integrated pharmacovigilance in the present era of large-scale pharmaceutical use for chronic conditions.

Crossing Boundaries to Investigate Problems in the Field: An Approach to Useful Research

An abstract is unavailable at this time.

Book: http://ceo.usc.edu/book/doing_research_that_is_useful.html

Business Network Transformation in Action

An abstract is unavailable at this time.

Book: http://www.josseybass.com/WileyCDA/WileyTitle/productCd-0470528346,descCd-tableOfContents.html

Workplace Peers and Entrepreneurship

Abstract

We examine whether the likelihood of entrepreneurial activity is related to the prior career experiences of an individual's co-workers, using a unique matched employer-employee panel dataset. We argue that coworkers can increase the likelihood that an individual will perceive entrepreneurial opportunities as well as increase his or her motivation to pursue those opportunities. We find that an individual is more likely to become an entrepreneur if his or her co-workers have been entrepreneurs before. Peer influences also appear to be substitutes for other sources of entrepreneurial influence: we find that peer influences are strongest for those who have less exposure to entrepreneurship in other aspects of their lives.

Family Control of Firms and Industries

An abstract is unavailable at this time.

Download the paper: http://www.people.hbs.edu/bvillalonga/VillalongaAmit_FM_Final.pdf

 

Working Papers

Banking Market Concentration and Consumer Credit Constraints: Evidence from the 1983 Survey of Consumer Finances

Abstract

This paper uses data from the 1983 Survey of Consumer Finances to test the relationship between the banks' market power and households' self-reported levels of credit constraints. The 1983 Survey was the last to identify households' geographic location, making it useful for this analysis. There is evidence that borrowers, and particularly young borrowers, were less credit-constrained in markets where banks enjoyed more market power. Interest rates on consumer borrowing decreased more sharply with age in competitive markets than in concentrated markets. These results are consistent with the Sharpe (1990) and Petersen-Rajan (1995) models of information acquisition in credit markets.

Download the paper: http://www.hbs.edu/research/pdf/10-077.pdf

Strategies to Fight Ad-sponsored Rivals

Abstract

We analyze the optimal strategy of a high-quality incumbent that faces a low-quality ad-sponsored competitor. In addition to competing through adjustments of tactical variables such as price or the number of ads a product carries, we allow the incumbent to consider changes in its business model. We consider four alternative business models—a subscription-based model; an ad-sponsored model; a mixed model in which the incumbent offers a product that is both subscription-based and ad-sponsored; and a dual model in which the incumbent offers two products, one based on the ad-sponsored model and the other based on the mixed-business model. We show that the optimal response to an ad-sponsored rival often entails business model reconfigurations. We also find that when there is an ad-sponsored entrant, the incumbent is more likely to prefer to compete through the subscription-based or the ad-sponsored model, rather than the mixed or the dual model, because of cannibalization and endogenous vertical differentiation concerns. We discuss how our study helps improve our understanding of notions of strategy, business model, and tactics in the field of strategy.

Download the paper: http://www.hbs.edu/research/pdf/10-026.pdf

Competing Complements

Abstract

In Cournot's model of complements, the producers of A and B are both monopolists. This paper extends Cournot's model to allow for competition between complements on one side of the market. Consider two complements, A and B, where the A + B bundle is valuable only when purchased together. Good A is supplied by a monopolist (e.g., Microsoft), and there is competition in the B goods from vertically differentiated suppliers (e.g., Intel and AMD). In this simple game, there may not be a pure-strategy equilibrium. With constant marginal costs, there is never a pure-strategy solution where the lower-quality B firm obtains positive market share. We also consider the case where A obtains revenue from follow-on sales, as might arise when A expects to make upgrade sales to an installed base. If profits from the installed base are sufficiently large, a pure-strategy equilibrium exists where both B firms are active in the market. Although there is competition in the complement market, the monopoly Firm A may earn lower profits in this environment. Consequently, A may prefer to accept lower future profits in order to interact with a monopolist complement in B.

Download the paper: http://www.hbs.edu/research/pdf/09-009.pdf

"Multinational Strategies and Developing Countries in Historical Perspective

Abstract

This working paper offers a longitudinal and descriptive analysis of the strategies of multinationals from developed countries in developing countries. The central argument is that strategies were shaped by the trade-off between opportunity and risk. Three broad environmental factors determined the trade-off. The first was the prevailing political economy, including the policies of both host and home governments, and the international legal framework. The second was the market and resources of the host country. The third factor was competition from local firms. The impact of these factors on corporate strategies is explored during the three eras in the modern history of globalization from the 19th century until the present day. The performance of specific multinationals depended on the extent to which their internal capabilities enabled them to respond to these external opportunities and threats.

Download the paper: http://www.hbs.edu/research/pdf/10-076.pdf

Why Do Firms Use Non-linear Incentive Schemes? Experimental Evidence on Sorting and Overconfidence

Abstract

Non-linear incentive schemes are commonly used to determine employee pay, despite their distortionary impact. We investigate possible reasons for their widespread use by examining the relationship between convex pay schemes and overconfidence. In a laboratory experiment, subjects chose between a piece rate and a convex pay scheme. We find that overconfident subjects are more likely than others to choose the convex scheme, even when it leads to lower pay. Overconfident subjects also persist in making the mistake despite clear feedback. These results suggest non-linear pay schemes may help companies select and retain overconfident workers and may reduce the wage bill.

Download the paper: http://www.hbs.edu/research/pdf/10-078.pdf

Coming Clean and Cleaning Up: Is Voluntary Self-Reporting a Signal of Effective Self-Policing?

Abstract

Administrative agencies are increasingly establishing voluntary self-reporting programs both as an investigative tool and to encourage regulated firms to police themselves. Effective self-policing is critical to contemporary regulatory designs that rely heavily on regulated entities to monitor and assure their own regulatory compliance. We investigate whether self-reporting, or the voluntary disclosure of legal violations, can reliably signal effective self-policing efforts that might warrant a reduction in regulatory scrutiny. We find voluntary disclosure to be associated with improvements in regulatory compliance and environmental performance, indicating that self-reporting is associated with effective self-policing. In addition, we find evidence that regulators subsequently reduced scrutiny of voluntary disclosers, which suggests that self-reporting can help regulators economize government enforcement resources and develop cooperative relationships with firms that are committed to self-policing.

Download the paper: http://www.hbs.edu/research/pdf/08-098.pdf

 

Cases & Course Materials

The Congressional Oversight Panel's Valuation of the TARP Warrants (A)

Carliss Y. Baldwin
Harvard Business School Case 210-035

The Congressional Oversight Panel wants to value the warrants issued to the government in connection with the TARP investments of 2008, in order to increase the transparency of options repurchases. The case describes the methodology used to value the warrants. Students have the opportunity to value warrants issued by 10 of the largest banks and to evaluate whether the Black-Scholes model can be used to value these very long-lived 10 options. Can be used to teach basic option valuation using Black-Scholes, but also raise dynamic hedging issues of interest to advanced students.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/210035-PDF-ENG

The Congressional Oversight Panel's Valuation of the TARP Warrants (B)

Carliss Y. Baldwin
Harvard Business School Supplement 210-036

The Congressional Oversight Panel wants to value the warrants issued to the government in connection with the TARP investments of 2008, in order to increase the transparency of options repurchases. The case describes the methodology used to value the warrants. This case follows "The Congressional Oversight Panel's Valuation of the TARP Warrants (A)"; it describes the findings of the panel's TARP Warrants Report and public and congressional reactions.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/210036-PDF-ENG

Diamond Foods

David E. Bell and Mary Shelman
Harvard Business School Case 510-013

CEO Michael Mendes has transformed a grower-owned cooperative into a publicly traded top marketer of snack foods. Diamond's organization, culture, product development process, advertising and promotion strategy, and specifically its marketing department have been built "from the ground up" to address fundamental changes in retail structure and consumer behavior. Can the Diamond model be successfully applied to other food categories?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/510013-PDF-ENG

TopCoder (A): Developing Software through Crowdsourcing

Karim R. Lakhani, David A. Garvin, and Eric Lonstein
Harvard Business School Case 610-032

TopCoder's crowdsourcing-based business model, in which software is developed through online tournaments, is presented. The case highlights how TopCoder has created a unique two-sided innovation platform consisting of a global community of over 225,000 developers who compete to write software modules for its over 40 clients. Provides details of a unique innovation platform where complex software is developed through ongoing online competitions. By outlining the company's evolution, the challenges of building a community and refining a web-based competition platform are illustrated. Experiences and perspectives from TopCoder community members and clients help show what it means to work from within or in cooperation with an online community. In the case, the use of distributed innovation and its potential merits as a corporate problem solving mechanism is discussed. Issues related to TopCoder's scalability, profitability, and growth are also explored.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/610032-PDF-ENG

Neoprene

Tom Nicholas and Felipe Tâmega Fernandes
Harvard Business School Case 810-084

In 1931, during one of the worst economic crises in U.S. history, Du Pont announced the discovery of an innovative rubber synthetic product-neoprene. Yet at the time of the announcement, Du Pont did not have any neoprene to sell. Manufacturing facilities were still being erected and production remained at laboratory scale. Rubber synthetics had been developed in Russia, Germany, and even in the United States before, but large-scale production had never taken off. Would Du Pont's announcement and public disclosure of the basic science lift the barriers to commercialization? What made Du Pont so confident that it could succeed at this uncertain time?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/810084-PDF-ENG

New York Life and Immediate Annuities

Julio J. Rotemberg and John T. Gourville
Harvard Business School Case 510-040

By positioning Immediate Annuities as "guaranteed lifetime income," New York Life has built itself a $1.4 billion per year business by 2009. However, to make Immediate Annuities a mainstream financial product for retirees, New York Life must understand why many retirees are reluctant to buy them and many agents are reluctant to sell them.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/510040-PDF-ENG

A Letter from Prison

Eugene Soltes
Harvard Business School Case 110-045

Stephen Richards, the former global head of sales at Computer Associates, Inc. (CA), is serving a seven-year prison sentence for financial fraud. In the case, Richards responds to a number of questions about managerial responsibility and the manipulation of financial performance in a letter written to a graduate student.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/110045-PDF-ENG

IBM Retail Business Assessment at Dillard's, Inc.: Managing Staffing Levels to Improve Conversion

Zeynep Ton
Harvard Business School Case 610-051

This case illustrates the challenges associated with matching staffing levels with variable workload in retail stores and highlights how decisions related to staffing and scheduling affect operational performance and the quality of labor at the stores. The case describes the tasks (both in-store logistics and customer service tasks) that are carried out by store employees at one Dillard's department store and presents nine weeks of traffic data at an hourly level collected by IBM. Additional data on labor hours and number of customer transactions allow students to examine the relationship between staffing levels and conversion rate. Given the large variation in customer traffic over time and the relationship between staffing levels and conversion rates, how should Dillard's manage staffing levels?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/610051-PDF-ENG