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.

September 27, 2011

The Yelp Effect

Many assume that online reviews written by customers can help or hurt retailers, but there has been little statistical proof backing up this belief. Michael Luca uses data from the review website Yelp and restaurant data from the Washington State Department of Revenue to put numbers around the claims. In "Reviews, Reputation, and Revenue: The Case of Yelp.com," Luca finds that a one-star increase in a Yelp rating leads to a 5 percent to 9 percent increase in revenue at smaller, independent restaurants. But chain restaurants are hurt by Yelp—their market share declined in areas where Yelp penetration increased.

Health Care Reform And Pharmaceuticals

Already the focus of much debate in the 2012 presidential race, the Patient Protection and Affordable Care Act—dubbed "Obamacare" by critics—will, if enacted fully, reshape the US health care industry. A new working paper by Arthur Daemmrich, "US Healthcare Reform and the Pharmaceutical Industry," evaluates how the ACA will affect the size of the biopharmaceutical market and competitive dynamics within the industry—both will increase, he argues. The ACA also has the potential to become the first health care system that sets budgets at the disease (or patient) level, linked to health outcomes, but to do so will require new approaches from health care industry players including pharmaceutical manufacturers.

Does The Huffington Post Need Human Editors?

The Huffington Post is the subject of a recent case study written by Thomas R. Eisenmann, Toby Stuart, and David Kiron. In "The Huffington Post," management faces a number of decisions about its growth strategy and plans to make a profit. A crucial decision is around how its content will be selected and distributed. Is it wiser to use human editors to curate the content, or allow social networking technologies to more or less crowdsource those decisions? The discussion helps students evaluate business models and the trade-offs faced by entrepreneurs as they consider growth strategy options.

— Sean Silverthorne
 

Publications

The Innovator's DNA: Mastering the Five Skills of Disruptive Innovators

Abstract

Some people are just natural innovators, right? With no apparent effort, they discover ideas for new products, services, and entire businesses. It may look like innovators are born, not made. But according to Jeffrey Dyer, Hal Gregersen, and Clay Christensen anyone can become more innovative. How? Master the discovery skills that distinguish innovative entrepreneurs and executives from ordinary managers. In The Innovator's DNA, the authors identify five capabilities demonstrated by the best innovators: (1) Associating: drawing connections between questions, problems, or ideas from unrelated fields; (2) Questioning: posing queries that challenge common wisdom; (3) Observing: scrutinizing the behavior of customers, suppliers, and competitors to identify new ways of doing things; (4) Experimenting: constructing interactive experiences and provoking unorthodox responses to see what insights emerge; and (5) Networking: meeting people with different ideas and perspectives. The authors explain how to generate ideas with these skills, collaborate with "delivery-driven" colleagues to implement ideas, and build innovation skills throughout your organization to sharpen its competitive edge. They also provide a self-assessment for rating your own innovator's DNA. Practical and provocative, this book is an essential resource for all teams seeking to strengthen their innovative prowess.

Publisher's link: http://hbr.org/product/the-innovator-s-dna-mastering-the-five-skills-of-d/an/14946-HBK-ENG?referral=00215&cm_mmc=email-_-news

Developing an Effective Organization: Intervention Method, Empirical Evidence, and Theory

Abstract

The field of organization development is fragmented and lacks a coherent and integrated theory and method for developing an effective organization. A 20-year action research program led to the development and evaluation of the Strategic Fitness Process (SFP)-a platform by which senior leaders, with the help of consultants, can have an honest, collective, and public conversation about their organization's alignment with espoused strategy and values. The research has identified a syndrome of six silent barriers to effectiveness and a dynamic theory of organizational effectiveness. Empirical evidence from the 20-year study demonstrates that SFP always enables truth to speak to power safely, and in a majority of cases enables senior teams to transform silent barriers into strengths, realign their organization's design and strategic management process with strategy and values, and in a few cases employ SFP as an ongoing learning and governance process. Implications for organization and leadership development and corporate governance are discussed.

Read the paper: http://www.emeraldinsight.com/books.htm?chapterid=1937908&show=pdf

Markets as Networks: The Dynamics and Implications of Interorganizational Network Structures

Abstract

During the last three decades, research in sociology, organizational theory, and strategy has produced a rich set of insights regarding how networks of interorganizational relationships shape the behaviors and outcomes of corporate actors. This research has provided compelling evidence that the concrete patterns of relationships in which organizations are embedded carry meaningful implications for firms' performance in their exchange ties (Gulati and Sytch, 2007) and acquisitions (Zaheer et al., 2010); revenues (Baum et al., 2000; Shipilov and Li, 2008); market share (Zaheer and Bell, 2005) and market entry (Jensen, 2008); IPO success (Gulati and Higgins, 2003; Stuart et al., 1999); innovation (Ahuja, 2000; Schilling and Phelps, 2007); growth (Galaskiewicz et al., 2006; Powell et al., 1996; Stuart, 2000); power (Fernandez and Gould, 1994); acquisition of competitive capabilities (McEvily and Marcus, 2005); alliance formation patterns (Gulati and Gargiulo, 1999; Gulati and Westphal, 1999); and for firms' propensities to adopt new administrative and governance practices (Davis and Greve, 1997; Westphal et al., 1997).

Read the paper: http://webuser.bus.umich.edu/msytch/pdfs/Sytch&Gulati.Markets.as.Networks.pdf

How Do Networks Matter? Unpacking the Performance Effects of Interorganizational Networks

Abstract

A growing body of research suggests that an organization's ties to other organizations furnish resources that bestow various benefits. Scholars have proposed different perspectives on how such networks of ties shape organizational behavior and performance outcomes, but they have paid little attention to the underlying mechanisms driving these effects. We propose reach, richness, and receptivity as three fundamental mechanisms that jointly constitute a parsimonious model for explaining how network resources contribute to organizational performance. Reach is the extent to which an organization's network connects it to diverse and distant partners. Richness represents the potential value of the resources available to the organization through its ties to partners. Receptivity denotes the extent to which the organization can access and channel network resources across interorganizational boundaries. Whereas reach specifies how wide-ranging and heterogeneous the organization's network connections are, richness characterizes the value of the combinations of resources furnished by its partners. Receptivity in turn portrays how organizational capabilities and the quality of ties to partners facilitate flows of network resources. We propose that the interplay of these three mechanisms determines the benefits that the organization obtains from its network: reach and richness jointly determine the potential value of the network, while receptivity is crucial in realizing that potential.

The Dynamics of Social Structure: The Emergence and Decline of Small Worlds

An abstract is unavailable at this time.

The Variance of Non-Parametric Treatment Effect Estimators in the Presence of Clustering

Abstract

Non-parametric estimators of treatment effects are often applied in settings where clustering may be important. We provide a general methodology for consistently estimating the variance of a large class of non-parametric estimators, including the simple matching estimator, in the presence of clustering. Software for implementing our variance estimator is available in Stata.

Read the paper: http://www.people.hbs.edu/shanson/ate_clustering_text_20110228_FINAL.pdf

Work, Ownership, and Productive Enfranchisement

An abstract is unavailable at this time.

Publisher's Link: http://www.wiley.com/WileyCDA/WileyTitle/productCd-1444334107.html

Organizational Ambidexterity in Action: How Managers Explore and Exploit

Abstract

Dynamic capabilities have been proposed as a useful way to understand how organizations are able to adapt to changes in technology and markets. Organizational ambidexterity, the ability of senior managers to seize opportunities through the orchestration and integration of existing assets to overcome inertia and path dependence, is a core dynamic capability. While promising, research on dynamic capabilities and ambidexterity has not yet been able to specify the specific mechanisms through which senior managers are actually able to reallocate resources and reconfigure assets to simultaneously explore and exploit. Using interviews and qualitative case studies from thirteen organizations, this article explores the actions senior managers took to implement ambidextrous designs and identify which ones helped or hindered them in their attempts. A set of interrelated choices of organization design and senior team process determines which attempts to build ambidextrous organizations are successful.

How Much to Make and How Much to Buy? Explaining Plural Sourcing Strategies

Abstract

While many theories of the firm seek to explain when firms make rather than buy, in practice, firms often make and buy the same input-they engage in plural sourcing. We argue that explaining the mix of external procurement and internal sourcing for the same input requires a consideration of complementarities across and constraints within modes of procurement. We create analytical foundations for making empirical predictions about when plural sourcing is likely to be optimal and why the optimal mix of internal and external sourcing may vary across situations. Our framework also proves useful for assessing the possible estimation biases in transaction level make-or-buy studies arising from ignoring complementarities and constraints.

Where Do Brokers Come From? The Role of a Firm's Ability, Motivation, and Opportunity

An abstract is unavailable at this time.

 

Working Papers

Managerial Practices That Promote Voice and Taking Charge among Frontline Workers

Abstract

Process-improvement ideas often come from frontline workers who speak up by voicing concerns about problems and by taking charge to resolve them. We hypothesize that organization-wide process-improvement campaigns encourage both forms of speaking up, especially voicing concern. We also hypothesize that the effectiveness of such campaigns depends on the prior responsiveness of line managers. We test our hypotheses in the healthcare setting, in which problems are frequent. We use data on nearly 7,500 reported incidents extracted from an incident-reporting system that is similar to those used by many organizations to encourage employees to communicate about operational problems. We find that process-improvement campaigns prompt employees to speak up and that campaigns increase the frequency of voicing concern to a greater extent than they increase taking charge. We also find that campaigns are particularly effective in eliciting taking charge among employees whose managers have been relatively unresponsive to previous instances of speaking up. Our results therefore indicate that organization-wide campaigns can encourage voicing concerns and taking charge, two important forms of speaking up. These results can enable managers to solicit ideas from frontline workers that lead to performance improvement.

Download the paper: http://www.hbs.edu/research/pdf/11-005.pdf

"Learning from Customers in Outsourcing: Individual and Organizational Effects

Abstract

The ongoing fragmentation of work has resulted in a narrowing of tasks into smaller and smaller pieces that can be sent outside the organization and, in many instances, around the world. Not surprisingly, this trend is shifting the boundaries of organizations. Though experience and productivity improvement may be seen as key benefits of this trend, little is known about how this shift toward outsourcing influences learning. When producing a unit of output, the content of the knowledge gained can vary dramatically from one unit to the next. One dimension along which a unit of output can vary-a dimension with particular relevance in outsourcing-is the end customer to whom it is delivered. The performance benefits of such customer experience remain largely unexamined. We explore the customer dimension of volume-based learning in the context of outsourced radiological services, where individual doctors at an outsourcing firm complete radiological reads for hospital customers. We examine more than 2.7 million cases for 1,431 customers read by 97 radiologists and find evidence supporting the benefit of accumulating customer-specific experience at the level of individual radiologists. Additionally, we find that customer depth for the entire outsourcing firm (i.e., total volume for a given customer across all radiologists at the firm) also yields learning and that the degree of customer depth moderates customer specificity at the individual level. We discuss the implications of our results for the study of learning and experience as well as for the providers and consumers of outsourced services.

Download the paper: http://www.hbs.edu/research/pdf/11-057.pdf

U.S. Healthcare Reform and the Pharmaceutical Industry

Abstract

Fiercely contested before, during, and since its passage, the 2010 Patient Protection and Affordable Care Act (ACA) will restructure the U.S. healthcare market if fully implemented in coming years. This article describes the institutional and political context in which the ACA was passed and develops estimates of its likely impact on the biopharmaceutical industry. Universal insurance, either through a government-run system or by mandated purchase of private insurance, has been controversial in the United States since it was first proposed in the mid-1930s. Even in the absence of national health coverage, the United States became the world's largest prescription drug market and emerged as the global leader in new drug research and testing. With health benefits globally from the availability of new drugs, albeit for poorer populations only after patent terms expire, changes to the U.S. healthcare system are also of significance to patients and the pharmaceutical industry internationally. This article evaluates how the ACA will affect the size of the biopharmaceutical market and competitive dynamics within the industry. Estimates are developed for healthcare spending in 2015 and 2020, especially for expenditures on prescription drugs in nominal terms and as a percentage of overall health spending. The article concludes with a discussion of the political economy of insurance and the sustainability of largely free-pricing of pharmaceuticals in the United States.

Download the paper: http://www.hbs.edu/research/pdf/12-015.pdf

Reviews, Reputation, and Revenue: The Case of Yelp.com

Abstract

Do online consumer reviews affect restaurant demand? I investigate this question using a novel dataset combining reviews from the Website Yelp.com and restaurant data from the Washington State Department of Revenue. Because Yelp prominently displays a restaurant's rounded average rating, I can identify the causal impact of Yelp ratings on demand with a regression discontinuity framework that exploits Yelp's rounding thresholds. I present three findings about the impact of consumer reviews on the restaurant industry: (1) a one-star increase in Yelp rating leads to a 5% to 9% increase in revenue, (2) this effect is driven by independent restaurants-ratings do not affect restaurants with chain affiliation, and (3) chain restaurants have declined in market share as Yelp penetration has increased. This suggests that online consumer reviews substitute for more traditional forms of reputation. I then test whether consumers use these reviews in a way that is consistent with standard learning models. I present two additional findings: (4) consumers do not use all available information and are more responsive to quality changes that are more visible and (5) consumers respond more strongly when a rating contains more information. Consumer response to a restaurant's average rating is affected by the number of reviews and whether the reviewers are certified as "elite" by Yelp, but is unaffected by the size of the reviewers' Yelp friends network.

Download the paper: http://www.hbs.edu/research/pdf/12-016.pdf

Salience in Quality Disclosure: Evidence from the U.S. News College Rankings

Abstract

How do rankings affect demand? This paper investigates the impact of college rankings, and the visibility of those rankings, on students' application decisions. Using natural experiments from U.S. News and World Report College Rankings, we present two main findings. First, we identify a causal impact of rankings on application decisions. When explicit rankings of colleges are published in U.S. News, a one-rank improvement leads to a 1-percentage-point increase in the number of applications to that college. Second, we show that the response to the information represented in rankings depends on the way in which that information is presented. Rankings have no effect on application decisions when colleges are listed alphabetically, even when readers are provided data on college quality and the methodology used to calculate rankings. This finding provides evidence that the salience of information is a central determinant of a firm's demand function, even for purchases as large as college attendance.

Download the paper: http://www.hbs.edu/research/pdf/12-014.pdf

Measuring Teamwork in Health Care Settings: A Review of Survey Instruments

Abstract

Objective. To identify, review, and evaluate survey instruments used to assess teamwork, a process critical to delivering quality care, so as to facilitate high quality research on this topic. Data sources. The ISI Web of Knowledge database, which includes articles from MEDLINE, Social Science Citation Index, and Science Citation Index.
Study design. We conducted a systematic review of articles published before January 2010 to identify survey instruments used to measure teamwork and determine their psychometric validity.
Data extraction. We identified relevant articles using the search terms team, teamwork, work groups, or collaboration, in combination with survey or questionnaire.
Principal findings. We found 36 scales that measured teamwork; only 9 scales met all of the criteria for psychometric validity. Twelve of the 36 scales have shown significant relationship to non-self-report outcomes of interest. Each of these 12 scales assessed some dimension of the quality of social interactions between members. All but one also assessed some dimension of the quality of task-related interactions.
Conclusions. Numerous survey instruments exist to measure teamwork. Few have demonstrated all of the psychometric properties recommended for use, and there is inconsistency in conceptualizations of teamwork. More research is needed to develop and refine measures of teamwork for reliable use by researchers and practitioners/managers.

Download the paper: http://www.hbs.edu/research/pdf/11-116.pdf

 

Cases & Course Materials

Fraunhofer: Innovation in Germany

Diego Comin, Gunnar Trumbull, and Kerry Yang
Harvard Business School Case 711-022

Fraunhofer is one of the largest applied research organizations in the world. With 17,000 employees and a 1.6 billion euros budget, Fraunhofer has 60 institutes in Germany that cover most fields of science. The case examines the consequences that Fraunhofer has for the competitiveness of the German economy. It also explores whether the organization of R&D is affected by the size distribution of firms as well as by institutions in labor and financial markets.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/711022-PDF-ENG

The Case Method of Instruction

John Deighton
Harvard Business School Course Overview 512-027

An abstract is unavailable at this time.

Purchase this course overview:
http://cb.hbsp.harvard.edu/cb/product/512027-PDF-ENG

The Cheezburger Network

John Deighton and Leora Kornfeld
Harvard Business School Case 511-091

Cheezburger Network was a Web publisher of humorous, user-contributed content, using social media for dissemination, and selling advertising against the traffic of 1 billion page views per quarter. In January 2011 it raised $30 million in venture capital for the network of 50 websites that featured an entertaining array of user-generated content. Beginning with a site based on pictures of cats with whimsical captions, it had grown into a small but impressive digital empire, riding waves of viral content. CEO Ben Huh prided himself on his ability to go from idea to implementation in just a few days, but this just-in-time method made strategic planning difficult. Profitable from day one and with $5 million of revenue across 50 brand identities, Huh's challenge was to evaluate his growth to date, to look critically at the digital media landscape, and to figure out how to best to spend the $30 million.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/511091-PDF-ENG

The Huffington Post

Thomas R. Eisenmann, Toby Stuart, and David Kiron
Harvard Business School Case 810-086

In February 2010, management of the Huffington Post, a fast-growing but not-yet-profitable Internet newspaper that aggregates blog posts from unpaid contributors and excerpts of stories originally published by other news sites, faces a number of decisions about its growth strategy. Foremost, Huffington Post management must determine whether to rely to a greater extent upon social networking technologies (e.g., Facebook, Twitter) to select and present the content delivered to specific users or continue to rely on human editors to play a curator role.

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http://cb.hbsp.harvard.edu/cb/product/810086-PDF-ENG

Torts 101: Civil Wrongs & Ways to Right Them

Lena G. Goldberg and Mary Beth Findlay
Harvard Business School Note 312-033

This note summarizes basic principles of tort law and is intended as background information for business students studying legal aspects of management.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/312033-PDF-ENG

Edna McConnell Clark Foundation—Enabling a Performance Driven Philanthropic Capital Market

Allen Grossman and Aldo Sesia
Harvard Business School Case 312-006

The Edna McConnell Clark Foundation, focused on building the organizational capabilities of nonprofits that served the disadvantaged youth in the United States, has recently been named an intermediary in the federal government's new social innovation fund (SIF), which is intended to bring together public-private funds to help expand effective solutions across three issue areas: economic opportunity, healthy futures, and youth development. SIF intermediaries would be responsible for directing resources to innovative community-based nonprofit organizations that were seeing results. Edna McConnell Clark Foundation had long been a promoter of evidence-based accountability and grantmaking and saw the absence of an efficient capital market in the nonprofit sector as a major impediment to funding growth, increasing scale, and building the sustainability of successful nonprofit organizations. With its Growth Capital Aggregation Pilot (GCAP), Edna McConnell Clark Foundation had seen positive results in taking a "syndicate" approach to funding a select group of nonprofits. With it being named an SIF intermediary, Edna McConnell Clark was ready to build on its GCAP experience and continue to evolve a model that would provide, at increased efficiency, growth capital for successful organizations. The foundation hoped to build a capital aggregation approach that would serve as a model for philanthropy.

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http://cb.hbsp.harvard.edu/cb/product/312006-PDF-ENG

Barrick Gold: Implementing a Transition to IFRS

David F. Hawkins and Angel R. Solis
Harvard Business School Case 112-009

Barrick Gold must change from Canadian GAAP to IFRS. Case covers the transition.

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http://cb.hbsp.harvard.edu/cb/product/112009-PDF-ENG

Amil and the Health Care System in Brazil

Regina E. Herzlinger and Ricardo Reisen de Pinho
Harvard Business School Case 312-029

Dr. Edson Bueno created Amil, Brazil's largest health insurer. Unlike many others, it is vertically integrated. Dr. Bueno has two opportunities for growth. Which, if any, should he pursue?

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http://cb.hbsp.harvard.edu/cb/product/312029-PDF-ENG

Willy Jacobsohn and Beiersdorf: Managing Expropriation and Anti-Semitism

Geoffrey G. Jones and Christina Lubinski
Harvard Business School Case 811-060

This case examines the management of home and host country risk by Beiersdorf during the interwar years. It can be used both in business history courses and more generally to teach political risk management by multinational corporations. Beiersdorf, a German personal products company, expanded globally before 1914, but had its foreign factories and intellectual property expropriated during World War I. After 1919 CEO Willy Jacobson rebuilt the international business and sought to protect it by "cloaking" the ultimate ownership. Following the appointment of Adolf Hitler, as German Chancellor in 1933, Beiersdorf and Jacobson personally also came under attack by the anti-Semitic Nazi regime in its home country. The case can be used as a vehicle to understand the rise of both host and home country risk by companies during the interwar years and, more generally, to explore the strategies that firms can follow to attempt to manage such risks.

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http://cb.hbsp.harvard.edu/cb/product/811060-PDF-ENG

InnoCentive.com (B)

Karim R. Lakhani and Eric Lonstein
Harvard Business School Supplement 612-026

InnoCentive.com enables clients to tap into internal and external solver networks to address various business issues. In 2008, InnoCentive introduced "InnoCentive@Work" (lC@W), which recognized clients' reluctance to share problems and solutions with an external network. Instead, IC@W enabled clients to foster open collaboration among its own employees. IC@W became the fastest growing product in InnoCentive's portfolio. In 2010, InnoCentive added "team project rooms" that allowed small groups of solvers from InnoCentive's community to openly add posts and discussion threads after agreeing to the confidentiality and IP transfer requirements of the client. The case raises the questions of how the team room concept could be improved and how clients could be convinced of its benefits.

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http://cb.hbsp.harvard.edu/cb/product/612026-PDF-ENG

InnoCentive.com (C)

Karim R. Lakhani and Eric Lonstein
Harvard Business School Supplement 612-027

InnoCentive.com enables clients to tap into internal and external solver networks to address various business issues. This case focuses on the outcome of InnoCentive's decision to post challenges related to environmental issues created by the Gulf oil spill. It reviews lessons learned from this experience and asks students to consider whether InnoCentive should post challenges in response to the nuclear crises resulting from the 2011 Japanese earthquake and tsunami.

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http://cb.hbsp.harvard.edu/cb/product/612027-PDF-ENG

CFW Clinics in Kenya: To Profit or Not for Profit

V. Kasturi Rangan and Katherine Lee
Harvard Business School Case 512-006

Ten years after having launched a chain of non-profit health clinics, its founder is now debating the merits of scaling the operation by converting to a for-profit enterprise.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/512006-PDF-ENG