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.

Feb. 15

Why do powerful tech companies have such problems remaining dominant in new technological eras? Traditionally, scholars have looked at two reasons: because companies want to protect their current businesses, and because executives are too entrenched inside their companies to see new opportunities outside. Researchers Timothy Bresnahan, Shane Greenstein, and Rebecca Henderson add a third possibility. Looking at Microsoft and IBM, their study finds that nontraditional projects have difficulty getting across-company resources as they grow. "In IBM and Microsoft's case this conflict eventually led to control over the new business being given to the old and that in both cases effectively crippled the new business," they conclude. Read Schumpeterian Competition and Diseconomies of Scope: Illustrations from the Histories of Microsoft and IBM.

Can advertising in a newspaper buy you better coverage? Apparently it can in Argentina, where Rafael Di Tella and coauthor Robert MacCulloch found a correlation between increased ad buys by the government and a drop in reporting about government corruption. They will report on their findings in a forthcoming issue of American Economic Journal: Applied Economics.

Diving into recent history, the parting of ways between CEO Mark Hurd and Hewlett-Packard is explored in the case Hewlett-Packard Company: CEO Succession in 2010. The case, written by Jay W. Lorsch, Krishna G. Palepu, and Melissa Barton, is intended to spur classroom discussion around how a board balances ethical and strategic considerations in assuring executive leadership for the company.

 

Publications

The Economics of Crime: Lessons for and from Latin America

Abstract

Publisher's Book Abstract: http://www.nber.org/books/dite09-1

Markets, Morals, and Practices of Trade: Jurisdictional Disputes in the U.S. Commerce in Cadavers

Abstract

This study examines the U.S. commerce in human cadavers for medical education and research to explore variation in legitimacy in trades involving similar goods. It draws on archival, interview, and observational data mainly from New York state to analyze market participants' efforts to legitimize commerce and resolve a jurisdictional dispute. Building on literature on professions, the study shows that how goods are traded, not only what is traded, proves integral to constructing legitimacy, thus suggesting a practice-based view of moral markets. The professionals, including a group of "gatekeepers," construct a narrative distinction between their own commerce and an implicitly less moral alternative and geographically insulate their trades from the broader commerce, creating in effect two circuits. Yet the professionals also promote specific practices of trade within their circuit to help them distinguish their own pursuit from an alternative course of action. The study's findings shed light on the micro-foundations of market legitimization and on the role of morals in sustaining professional jurisdictions.

A Temporal View of the Costs and Benefits of Self-Deception

Abstract

Researchers have documented many cases in which individuals rationalize their regrettable actions. Four experiments examine situations in which participants go beyond merely explaining away their misconduct to actively deceiving themselves. We find that those who exploit opportunities to cheat on tests are likely to engage in self-deception, inferring that their elevated performance is a sign of intelligence. This short-term psychological benefit of self-deception, however, can come with longer-term costs: when predicting future performance, participants expect to perform equally well—a lack of awareness that persists even when these inflated expectations prove costly. We show that although people expect to cheat, they do not foresee self-deception, and that factors which reinforce the benefits of cheating enhance self-deception. More broadly, the findings of these experiments offer evidence that debates about the relative costs and benefits of self-deception are informed by adopting a temporal view that assesses the cumulative impact of self-deception over time.

Download the paper: http://www.people.hbs.edu/mnorton/chance%20norton%20gino%20ariely.pdf

El Sector Privado y las Responsabilidades Públicas: El Rol de las Soluciones Comerciales en la Temática Social

Abstract

In today's world, certain goods and services are considered so basic that, regardless of culture, they are accepted as public responsibilities. However, for the low-income populations in developing countries, which constitute the majority of the world, access to these takes place through cash markets, which often overwhelm the supply from public sources. Recently, the insertion into this world of business models incorporating advanced management expertise have demonstrated that commercial success is possible while significantly improving access to these basic services for the base of the pyramid. This is illustrated through examples in water, healthcare, and microfinance. In the process, a case is made that these disruptive commercial models are a key component in the response to poverty, and that there is a social role for financial returns. Accordingly, the basic goods and services of society must be defined both as public and private, each complementing the other.

Government Advertising and Media Coverage of Corruption Scandals

Abstract

: We construct measures of the extent to which the four main newspapers in Argentina report government corruption in their front page during the period 1998-2007 and correlate them with government advertising. The correlation is negative. The size is considerable: a one standard deviation increase in monthly government advertising is associated with a reduction in the coverage of the government's corruption scandals by 0.23 of a front page per month, or 18% of a standard deviation in coverage. The results are robust to the inclusion of newspaper, month, newspaper president, and individual-corruption scandal fixed effects as well as newspaper-president specific time trends.

Happiness Adaptation to Income and to Status in an Individual Panel

Abstract

We study adaptation to income and to status using individual panel data on the happiness of 7,812 people living in Germany from 1984 to 2000. Specifically, we estimate a "happiness equation" defined over several lags of income and status and compare the long-run effects. We can (cannot) reject the hypothesis of no adaptation to income (status) during the four years following an income (status) change. In the short run (current year) a one standard deviation increase in status and 52% of one standard deviation in income are associated with similar increases in happiness. In the long run (five-year average) a one standard deviation increase in status has a similar effect to an increase of 285% of a standard deviation in income. We also present different estimates of adaptation across subgroups. For example, we find that those on the right (left) of the political spectrum adapt to status (income) but not to income (status). We can reject equal relative adaptation (to income versus status) for these two subgroups.

Distribution and Victim Behavior during a Crime Wave

Abstract

The study of how crime affects different income groups faces the difficulty that crime-avoiding activities vary across these groups. Thus, a lower victimization rate in one group may not reflect a lower burden of crime, but rather a higher investment in crime avoidance. Moreover, protection activities by one group can displace crime onto another group. We take advantage of a dramatic increase in crime rates in Argentina during the late 1990s to document several interesting patterns. First, the increase in victimization experienced by the poor is larger than the increase endured by the rich. The difference appears large: low-income people have experienced increases in victimization rates that are almost 50% higher than those suffered by high-income people. Second, for home robberies, where the rich can protect themselves (by hiring private security, for example), we find significantly larger increases in victimization rates amongst the poor. In contrast, for robberies on the street, where the rich can only mimic the poor (by not using jewelry, for example), we find similar increases in victimization for both income groups. Third, we document direct evidence on pecuniary and non-pecuniary protection activities by both the rich and poor, ranging from the avoidance of dark places to the hiring of private security. Fourth, we estimate a negative correlation between changes in protection and mimicking and changes in crime victimization. Our findings are consistent with the presence of a negative externality on the poor arising from the protection expenditures of the rich.

Seeing and Being Seen Across Differences in Race and Gender

An abstract is unavailable at this time.

Publisher's Link: http://www.smi.ethz.ch/news/news/docs/ResearchAlive.pdf

An Organizational Approach to Undoing Gender: The Unlikely Case of Offshore Oil Platforms

Abstract

This case study of two offshore oil platforms illustrates how an organizational initiative designed to enhance safety and effectiveness created a culture that unintentionally released men from societal imperatives for "manly" behavior, prompting them to let go of masculine-image concerns and to behave instead in counter-stereotypical ways. Rather than proving how tough, proficient, and cool-headed they were, as was typical of men in other dangerous workplaces, platform workers readily acknowledged their physical limitations, publicly admitted their mistakes, and openly attended to their own and others' feelings. More importantly, platform workers did not replace a conventional image of masculinity with an unconventional one and then set out to prove the new image—revealing mistakes strategically, for example, or competing in displays of sensitivity. Instead, the goal of proving one's masculine credentials, conventional or otherwise, appeared to no longer hold sway in men's workplace interactions. Building on West and Zimmerman's (1987) now classic articulation of gender as "the product of social doings," we describe this organizationally induced behavior as "undoing" gender. We use this case, together with secondary case data drawn from 10 published field studies of men doing dangerous work, to induce a model of how organizational cultures equip men to "do" and "undo" gender at work.

Breakthrough Inventions and the Growth of Innovation Clusters

Abstract

This report provides a comprehensive look at the role of innovation in promoting economic and social development. It examines the impact of innovation on the economic growth of developing countries and the future role of technological innovation in international efforts to mitigate the effects of climate change, amongst many other issues.

Publisher's Link: http://www.palgrave.com/products/title.aspx?pid=383865

Is Life Nasty, Brutish, and Short? Philosophies of Life and Well-Being

Abstract

Three studies examine the extent to which laypeople endorse Thomas Hobbes' (1651) view of life as "nasty, brutish, and short" and explore the relationships between this philosophy and well-being. We asked participants to answer two binary choice questions: Is life short or long? And, is life easy or hard? Across a series of studies, the majority of participants indicated that they believed that life is short and hard, while the opposite philosophy, that life is long and easy, was least popular. In addition, these philosophies were correlated with participants' views of their lives: the short-hard philosophy was associated with lower levels of well-being (Studies 1-3), civic engagement (Study 2), and optimism about the future (Study 3), compared to the long-easy philosophy.

Download the paper: http://www.people.hbs.edu/mnorton/norton%20anik%20aknin%20dunn.pdf

Deposit Insurance and Subsidized Recapitalizations

Abstract

The 2007-2009 financial crisis saw a vast expansion in deposit insurance guarantees around the world, and yet our understanding of the design and consequences of deposit insurance schemes is in its infancy. We provide a new rationale for the provision of deposit insurance. In our model the banking sector exhibits both adverse selection and moral hazard, which implies that the social benefits of bank monitoring must for incentive reasons be shared between depositors and banks. Consequently, socially too few deposits are made in equilibrium. Deposit insurance—or, equivalently, bank recapitalization—corrects this market failure. We find that deposit insurance should be funded not by banks or depositors but out of general taxation. The optimal level of deposit insurance varies inversely with the quality of the banking system. Hence, when the soundness of the financial sector is uncertain, governments should consider supporting deposit insurance schemes and undertaking subsidised recapitalisations.

 

Working Papers

Trade Policy and Firm Boundaries

Abstract

We study how trade policy affects firms' ownership structures. We embed an incomplete contracts model of vertical integration choices into a standard perfectly competitive international trade framework. Integration decisions are driven by a trade-off between the pecuniary benefits of coordinating production decisions and the managers' private benefits of operating in preferred ways. The price of output is a crucial determinant of this choice, since it affects the size of the pecuniary benefits: higher prices lead to more integration. Because tariffs increase domestic product prices, this effect provides a novel theoretical channel through which trade policy can influence firm boundaries. We then examine the evidence, using a unique dataset to construct firm-level indices of vertical integration for a large set of countries. In line with the predictions of our model, we obtain three main results. First, higher tariffs lead to higher levels of vertical integration at the firm level. Second, differences in ownership structure across countries, measured by the difference in sectoral vertical integration indices, are smaller in sectors with similar levels of protection. Finally, ownership structures are more alike among members of regional trade agreements.

Download the paper: http://www.hbs.edu/research/pdf/10-060.pdf

Competition and Diseconomies of Scope: Illustrations from the Histories of Microsoft and IBM

Abstract

We address a longstanding question about the causes of creative destruction. Dominant incumbent firms, long successful in an existing technology, are often much less successful in new technological eras. This is puzzling, since a cursory analysis would suggest that incumbent firms have the potential to take advantage of economies of scope across new and old lines of business and, if economies of scope are unavailable, to simply reproduce entrant behavior by creating a "firm within a firm." There are two broad streams of explanation for incumbent failure in these circumstances. One posits that incumbents fear cannibalization in the marketplace, and so under-invest in the new technology. The second suggests that incumbent firms develop organizational capabilities and cognitive frames that make them slow to "see" new opportunities and that make it difficult to respond effectively once the new opportunity is identified. In this paper we draw on two of the most important historical episodes in the history of the computing industry, the introduction of the PC and of the browser, to develop a third hypothesis. Both IBM and Microsoft, having been extremely successful in an old technology, came to have grave difficulties competing in the new, despite some dramatic early success. We suggest that these difficulties do not arise from cannibalization concerns or from inherited cognitive frames. Instead they reflect diseconomies of scope rooted in assets that are necessarily shared across both businesses. We show that both Microsoft and IBM were initially very successful in creating freestanding business units that could compete with entrants on their own terms, but that as the new businesses grew, the need to share key firm-level assets imposed significant costs on both businesses and created severe organizational conflict. In IBM and Microsoft's case this conflict eventually led to control over the new business being given to the old and that in both cases effectively crippled the new business.

Download the paper: http://www.hbs.edu/research/pdf/11-077.pdf

'Sponsored Links' or 'Advertisements'?: Measuring Labeling Alternatives in Internet Search Engines

Abstract

In an online experiment, we measure users' interactions with search engines, both in standard configurations and in modified versions with improved labels identifying search engine advertisements. In particular, for a random subset of users, we change "sponsored link" or "ad" labels to instead read "paid advertisement." Relative to users receiving the "sponsored link" or "ad" labels, users receiving the "paid advertisement" label click 23% and 26% fewer advertisements, respectively. Users seeing "paid advertisement" labels also correctly report that they click fewer advertisements, controlling for the number of advertisements they actually click. Results are most pronounced for commercial searches, and for users with low income, low education, and little online experience. We find no evidence that consumers find Google's new "ads" label more informative than the longstanding prior label "sponsored links."

Download the paper: http://www.hbs.edu/research/pdf/11-048.pdf

Driven by Social Comparisons: How Feedback about Coworkers' Effort Influences Individual Productivity

Abstract

Drawing on theoretical insights from research on social comparison processes, this article explores how managers can use performance feedback to sustain employees' motivation and performance in organizations. Using a field experiment at a Japanese bank, we investigate the effects of valence (positive versus negative), type (direct versus indirect), and timing of feedback (one-shot versus persistent) on employee productivity. Our results show that direct negative feedback (e.g., an employee learns her performance falls in the bottom of her group) leads to improvements in employees' performance, while direct positive feedback does not significantly impact performance. Furthermore, indirect negative feedback (e.g., the employee learns she is not in the bottom of her group) worsens productivity while indirect positive feedback (e.g., the employee learns she is not in the top of her group) does not affect it. Finally, both persistently positive and persistently negative feedback lead to improvements in employees' performance. Together, our findings offer insight into the role of performance feedback in motivating productivity in repetitive tasks.

Download the paper: http://www.hbs.edu/research/pdf/11-078.pdf

Memory Lane and Morality: How Childhood Memories Promote Prosocial Behavior

Abstract

Four experiments demonstrated that recalling memories from one's own childhood lead people to experience feelings of moral purity and to behave prosocially. In Experiment 1, participants instructed to recall memories from their childhood were more likely to help the experimenter with a supplementary task than were participants in a control condition, and this effect was mediated by self-reported feelings of moral purity. In Experiment 2, the same manipulation increased the amount of money participants donated to a good cause, and self-reported feelings of moral purity mediated this relationship. In Experiment 3, participants who recalled childhood memories judged the ethically questionable behavior of others more harshly, suggesting that childhood memories lead to altruistic punishment. Finally, in Experiment 4, compared to a control condition, both positively valenced and negatively valenced childhood memories led to higher empathic concern for a person in need, which, in turn increased intentions to help.

Download the paper: http://www.hbs.edu/research/pdf/11-079.pdf

Platform Competition under Asymmetric Information

Abstract

In the context of platform competition in a two-sided market, we study how uncertainty and asymmetric information concerning the success of a new technology affects the strategies of the platforms and the market outcome. We find that the incumbent dominates the market by setting the welfare-maximizing quantity when the difference in the degree of asymmetric information between buyers and sellers is significant. However, if this difference is below a certain threshold, then even the incumbent platform will distort its quantity downward. Since a monopoly incumbent would set the welfare-maximizing quantity, this result indicates that platform competition may lead in a market failure: competition results in a lower quantity and lower welfare than a monopoly. We consider two applications of the model. First, the model provides a compelling argument why it is usually entrants, not incumbents, that bring major technological innovations to the market. Second, we consider multi-homing. We find that the incumbent dominates the market and earns higher profit under multi-homing than under single-homing. Multi-homing solves the market failure resulting from asymmetric information in that the incumbent can motivate the two sides to trade for the first-best quantity even if the difference in the degree of asymmetric information between the two sides is narrow.

Download the paper: http://www.hbs.edu/research/pdf/11-080.pdf

Accelerating Energy Innovation: Insights from Multiple Sectors

An abstract is unavailable at this time.

Download the paper: http://www.hbs.edu/research/pdf/10-067.pdf

How Firm Strategies Influence the Architecture of Transaction Networks

Abstract

In the context of business ecosystems, hierarchy is an architectural property that refers to the degree to which transactions proceed in a single direction, from "upstream" to "downstream." It is often assumed that a unidirectional flow of goods in a value chain implies a corresponding hierarchy in the transaction networks of firms participating in the chain. However, this is an untested hypothesis; in fact, little is known about whether hierarchy varies across transaction networks, and, if so, what causes such variation. In this study, we apply network-based methods to define and measure the degree of hierarchy in interfirm transaction networks in two industry sectors in Japan: automotive and electronics. Our empirical results show that the electronics sector exhibits a much lower degree of hierarchy than the automotive sector due to the existence of numerous interfirm transaction cycles. Transaction cycles in turn can arise when a subset of firms adopt the strategy of vertically permeable boundaries. Such firms are vertically integrated in the sense of participating in multiple stages of the value chains, but their internal upstream units also sell into and downstream units buy from intermediate markets. Our comparative analysis suggests that firms elect the strategy of vertically permeable boundaries when they face low transaction costs and high rates of product innovation, but at the same time believe there are knowledge complementarities between different stages of the value chain. Vertically permeable boundaries allow such firms to take advantage of cross-division knowledge complementarities while maintaining the competitiveness of upstream units through their participation in intermediate markets.

Download the paper: http://www.hbs.edu/research/pdf/11-076.pdf

Impacts of Immigration: A Survey

Abstract

This paper surveys recent empirical studies on the economic impacts of immigration. The survey first examines the magnitude of immigration as an economic phenomenon in various host countries. The second part deals with the assimilation of immigrant workers into host-country labor markets and concomitant effects for natives. The paper then turns to immigration's impact for the public finances of host countries. The final section considers emerging topics in the study of immigration. The survey particularly emphasizes the recent experiences of Northern Europe and Scandinavia and relevant lessons from traditional destination countries like the U.S.

Download the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1228902

 

Cases & Course Materials

Los Grobo: Farming's Future?

David E. Bell and Cintra Scott
Harvard Business School Case 511-088

This case describes the international expansion plans of the second largest grain producer in Latin America, Los Grobo. Based in Argentina with US$550 million in annual sales, Los Grobo also operated in Brazil, Uruguay, and Paraguay—usually with local partners. Los Grobo had an unusual business model: it did not own land nor farm machinery. Instead, it created a network of partnered producers and suppliers. In other words, it outsourced as much as possible. CEO Gustavo Grobocopatel believed that Los Grobo's network model was the best way to work within "farming's new paradigm," in which knowledge and technological advancements were farmers' most important tools.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/511088-PDF-ENG

Hungerit

David E. Bell, Sarah Morton, and Mary Shelman
Harvard Business School Case 510-010

Hungary's top producer of poultry products is deciding the company's future strategy in the face of new opportunities in Central and Eastern Europe, a changing retail market in Hungary, and the possibility of increased global competition.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/510010-PDF-ENG

Computerized Provider Order Entry at Emory Healthcare

Richard G. Hamermesh, F. Warren McFarlan, Mark Keil, Michael Morgan, Andrew Katz, and David LaBorde
Harvard Business School Case 311-061

This case presents one hospital system's efforts to implement computerized provider order entry (CPOE) across all of its hospitals and the challenges they faced in doing so. Issues such as standardization of care, how to handle medication reconciliation, and unexpected challenges (e.g., changes to the post-op ordering process, lack of a human gatekeeper to monitor order flow, increase in lab orders) are discussed. Dr. Bill Bornstein, chief quality and medical officer of Emory Healthcare in Atlanta, is responsible for the smooth implementation of CPOE at Emory Healthcare, which is a vital part of its $50 million electronic medical record initiative. By June 2009, CPOE had gone "live" at Emory University Orthopaedics and Spine Hospital, Emory University Hospital, and Wesley Woods Hospital in a staged rollout. While Dr. Bornstein felt good about how the implementation had gone thus far, as he looked ahead next month to July 13, 2009, the fast approaching go-live date for Emory University Hospital Midtown (EUHM), he was concerned about the challenges and possible perils that lay ahead. He considered what additional actions he should take to prepare for go-live at Midtown, and if Midtown was ready for CPOE at all. One thing was certain; this hospital was different. This case also presents one hospital system's efforts to grapple with the challenges of implementing CPOE and the reactions that result. Issues such as how to deal with a workforce that has mixed views about the value of implementing such systems, the pros and cons associated with standardization of care, as well as how to deal with unexpected changes to work processes are discussed. The case also allows for discussion of how to plan a phased implementation with adequate time for organizational learning to occur between the time that various sites "go live."

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/311061-PDF-ENG

Go Mobile: The Phirbol Franchise

Rajiv Lal and Natalie Kindred
Harvard Business School Case 510-020

To grow Phirbol, a telecom retail franchise chain in Delhi, India's underdeveloped markets, its founders were exploring ways to offer more value to the franchisees. In mid-2009, the Phirbol franchise was comprised of some 150 franchisees that had converted their small "mom-and-pop" shops into Phirbol-branded stores. Entrepreneurs Meghna Modi and Glenn Wong had launched the franchise in 2007, two years after they founded Go Mobile, a company-owned mobile retail chain. While Go Mobile stores were located in higher-income neighborhoods and focused primarily on selling phone handsets, Phirbol stores could be found in less—developed areas—most were not accessible by car—and focused on selling service connections (SIM cards) and recharges. Phirbol added value to the franchisees by streamlining some of their business processes, offering them a consistent product supply, providing them sales support and incentives, as well as providing them with education on the constantly changing dynamics of India's mobile market. But as the founders looked towards expanding, they knew they would have to enhance their offering to franchisees in order to recruit some of the more established "mom-and-pop" stores they planned to target as franchisees. In addition, they would need to adjust their business model such that more responsibility was delegated to franchisees and staff. Looking forward, what should Modi and Wong do to ensure Phirbol's success?

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http://cb.hbsp.harvard.edu/cb/product/510020-PDF-ENG

Board Leadership at Entergy Corporation

Jay W. Lorsch and Melissa Barton
Harvard Business School Case 410-061

Wayne Leonard became CEO of Entergy in 1999. After serving as CEO for close to eight years, the Entergy Board named Leonard chairman and CEO.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/410061-PDF-ENG

Hewlett-Packard Company: CEO Succession in 2010

Jay W. Lorsch, Krishna G. Palepu, and Melissa Barton
Harvard Business School Case 411-056

Mark Hurd resigned as the CEO of Hewlett-Packard in 2010 after the board discovered that he had misfiled expense reports and paid an HP contractor for unsubstantiated work. After Hurd left HP, he joined Oracle, an HP competitor. Soon thereafter, the HP board appointed a new CEO following an eight-week search.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/411056-PDF-ENG

A Slice of the Pie: Ruby Collins and Tenants in Common

John D. Macomber and Kristian Peterson
Harvard Business School Case 211-008

A securitized small real estate investment vehicle fails, and the many individual owners have to decide how to manage or dispose of the asset. This case follows Ruby Collins, a small investor, through the logic of Section 1031 Like Kind Exchanges as well as the consideration of Tenant in Common ownership. Tenancy in Common has some attractive aspects, but its regulation falls between a security and a real estate investment. The risk and control characteristics also vary. This case explores both the valuation of the property and the logistical issues around managing it, as well as the relationships between individuals who now find themselves business partners with no prior familiarity with each other.

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http://cb.hbsp.harvard.edu/cb/product/211008-PDF-ENG