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 7

Evaluating market value of a high-flying social media IPO

No, we're not talking about Facebook. But close. A new case study helps students evaluate the market value for LinkedIn's stock after its recent IPO. The case, "LinkedIn Corporation," was written by Francois Brochet and James Weber. "The case can serve to illustrate the challenges of valuing an early-stage high-growth company with a great deal of uncertainty about fundamental value and how quoted prices might reflect expectations that are hard to justify," according to the authors.

Pressure and team performance

Does pressure motivate or hinder a team's performance? In an forthcoming article in

Administrative Science Quarterly, Heidi K. Gardner reports on her recent research of 78 audit and consulting teams from two global professional firms. The research revealed "an irony of team life: even though motivated to perform well on a high-stakes project, pressured teams are more likely to engage in performance-detracting behaviors." Read the working paper on which the article was based, Performance Pressure as a Double-Edged Sword: Enhancing Team Motivation While Undermining the Use of Team Knowledge.

PerkinElmer in China

In 2009, PerkinElmer acquired Sym-Bio, an entrepreneurial Chinese diagnostic company specializing in infectious disease testing. A new case study by professor Vicki Sato and MBA students Christoph Jaeker and Kareem Reda, looks at the growth challenges of both the acquirer —trying to expand its operations in China and other emerging markets —and the acquired, intent on a rapid expansion as it learns to operate within the larger PerkinElmer family. Read "PerkinElmer —Developing Products in China for China."

 

Publications

The Profits of Power: Commerce and Realpolitik in Eurasia

Abstract

Although the energy trade is the single most important element of nearly all European countries' relations with Russia, Europe has been divided by both worldview and practice. Why, in the face of the common challenge of dependence on imported Russian gas, have national reactions to such vulnerability varied so dramatically across the continent? And why have a handful of French, German, and Italian corporations somehow taken responsibility for formulating the energy strategy-and thus the Russia policy-for essentially all of Europe? The resolutions of these two puzzles are, I show, interlinked; they also demand theoretical innovation. With several case studies-of Gazprom's decision making during the 2006 and 2009 gas crises and of the response of western and central Europe to their gas dependence-I find that firms are driving these political outcomes; those firms are motivated by profits but employ sociological conventions along their ways; and firms generally seek the necessary inter-firm, cross-border cooperation that will deliver corporate performance. Finally, I conclude that the field will ultimately require a framework that puts firms at its center.

Benefiting from Location: Knowledge Retrieval

An abstract is unavailable at this time.

Read the paper: http://onlinelibrary.wiley.com/doi/10.1002/gsj.28/abstract

Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation

Abstract

In this paper, we assess the economic viability of innovation by producers relative to two increasingly important alternative models: innovations by single-user individuals or firms and open collaborative innovation. We analyze the design costs and architectures and communication costs associated with each model. We conclude that both innovation by individual users and open collaborative innovation increasingly compete with and may displace producer innovation in many parts of the economy. We explain why this represents a paradigm shift with respect to innovation research, policy making, and practice. We discuss important implications and offer suggestions for further research.

Read the paper: http://dx.doi.org/10.1287/orsc.1100.0618

Equitable and Efficient Coordination in Traffic Flow Management

Abstract

When air traffic demand is projected to exceed capacity, the FAA implements Traffic Flow Management programs. Independently, these programs maintain a first-scheduled, first-served invariant, which is the accepted standard of fairness within the industry. Coordinating conflicting programs requires a careful balance between equity and efficiency. In our work, we first develop a fairness metric to measure deviation from first-scheduled, first-served in the presence of program conflicts. Next, we develop an IP formulation that minimizes a convex approximation of this metric. We further develop an exponential penalty approach and show that its computational performance is far superior and its trade-off between delay and fairness compares favorably. In our results, we demonstrate the effectiveness of these models using historical and hypothetical scenarios. Additionally, we demonstrate that the exponential penalty approach exhibits exceptional computational performance, implying practical viability. Our results suggest that this approach could lead to system-wide savings on the order of $25 million to $50 million per year.

Using Internet Data for Economic Research

Abstract

The data used by economists can be broadly divided into two categories. First, structured datasets arise when a government agency, trade association, or company can justify the expense of assembling records. The Internet has transformed how economists interact with these datasets by lowering the cost of storing, updating, distributing, finding, and retrieving this information. Second, some economic researchers affirmatively collect data of interest. Historically, assembling a dataset might involve delving through annual reports or archives that had not previously been organized into a format ready for research: in some cases, surveying stores, factories, consumers, or workers, or in other cases, carrying out an experiment. For researcher-collected data, the Internet opens exceptional possibilities both by increasing the amount of information available for researchers to gather and by lowering researchers' costs of collecting information. In this paper, I explore the Internet's new datasets, present methods for harnessing their wealth, and survey a sampling of the research questions these data help to answer.

Advertising Disclosures: 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 clearer labels identifying search engine advertisements. In particular, for a random subset of users, we change "Sponsored links" or "Ads" labels to instead read "Paid Advertisements." Relative to users receiving the "Sponsored link" or "Ad" labels, users receiving the "Paid Advertisement" label click 25% and 27% 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 vulnerable users with low education and little online experience.

Read the paper: http://www.benedelman.org/adlabeling/adlabeling.pdf

Evaluating Air Traffic Flow Management in a Collaborative Decision-Making Environment

Abstract

The Collaborative Decision-Making (CDM) framework introduced into ground delay programs in the late 1990s is an integral component of the FAA's Traffic Flow Management (TFM) procedures. CDM allows the FAA to act as a mediator when managing TFM programs, transferring as much decision making as possible to the individual airlines. Although this approach has been highly successful in practice, it creates a new question for the research community: How should proposed enhancements to TFM be evaluated in a CDM environment? A sequential evaluation procedure, developed in this paper, addresses this question. The procedure includes airline disruption responses and a quasi-compression operation, attempting to mimic the three-stage CDM process. To model airline disruption responses, an integer optimization model was developed to balance operational and passenger considerations in determining which flights to cancel, swap, or delay. The value of this procedure is demonstrated by analyzing an optimization-based TFM approach in the CDM environment.

Read the paper: http://trb.metapress.com/content/g6kt053v4651386t/

Performance Pressure as a Double-Edged Sword: Enhancing Team Motivation While Undermining the Use of Team Knowledge

Abstract

In this paper, I develop and empirically test the proposition that performance pressure acts as a double-edged sword for teams, providing positive effects by enhancing team motivation to achieve good results while simultaneously triggering process losses. I conducted a multi-method field study of 78 audit and consulting teams from two global professional firms, revealing an irony of team life: even though motivated to perform well on a high-stakes project, pressured teams are more likely to engage in performance-detracting behaviors. Survey results show that, as performance pressure increases, team members begin to over-rely on general expertise while discounting domain-specific expertise, leading to suboptimal performance. I use longitudinal qualitative case studies to explore the underlying behavioral mechanisms that generate this outcome. Results also show that only domain-specific expertise-the kind that teams under-use when facing higher pressure-increases client-rated team performance. I thus find, paradoxically, that when teams need domain-specific expertise the most, they tend to use it the least, despite evidence suggesting they are highly motivated to do well on their task.

Authentic Leadership Development

An abstract is unavailable at this time.

Publisher's link: http://www.sagepub.com/books/Book235126

Exploring the Duality between Product and Organizational Architectures: A Test of the 'Mirroring' Hypothesis

Abstract

: A variety of academic studies argue that a relationship exists between the structure of an organization and the design of the products that this organization produces. Specifically, products tend to "mirror" the architectures of the organizations in which they are developed. This dynamic occurs because the organization's governance structures, problem solving routines, and communication patterns constrain the space in which it searches for new solutions. Such a relationship is important, given that product architecture has been shown to be an important predictor of product performance, product variety, process flexibility and even the path of industry evolution. We explore this relationship in the software industry. Our research takes advantage of a natural experiment, in that we observe products that fulfill the same function being developed by very different organizational forms. At one extreme are commercial software firms, in which the organizational participants are tightly coupled, with respect to their goals, structure, and behavior. At the other, are open source software communities, in which the participants are much more loosely coupled by comparison. The mirroring hypothesis predicts that these different organizational forms will produce products with distinctly different architectures. Specifically, loosely coupled organizations will develop more modular designs than tightly coupled organizations. We test this hypothesis, using a sample of matched-pair products.

Read the paper: http://www.hbs.edu/research/pdf/08-039.pdf

Walking the Talk in Multiparty Bargaining: An Experimental Investigation

Abstract

We study the framing effects of communication on payoffs in multiparty bargaining. Communication has been shown to be more truthful and revealing than predicted in equilibrium. Because talk is preference revealing, it may effectively frame bargaining around a logic of fairness or competition, moving parties on a path toward or away from equal-division agreements. These endogenous framing effects may outweigh any overall social utility effects due to the mere presence of communication. In two studies, we find that non-binding talk about fairness within a three-party, complete-information game leads toward off equilibrium, equal division payoffs, while non-binding talk focusing on competitive reasoning moves parties away from equal divisions. Our two studies allow us to demonstrate that manipulated pre-game talk and spontaneous within-game dialogue lead to the same results.

An Age Penalty in Racial Preferences

Abstract

We document an age penalty in racial discrimination: charitable behavior toward African American children decreases-and negative stereotypical inferences increase-with the age of those children. Using data from an online charity that solicits donations for school projects, we found that proposals accompanied by images of older African American students (Grades 6-12) led to fewer donations than proposals with images of younger African Americans (pre-K-Grade 5), with the opposite pattern for proposals with images of multiples races or of all White students. A laboratory experiment demonstrated that negative stereotypical beliefs about African Americans (e.g., that they are lazy) increased with age more for African American children than for White children, a pattern that predicted decreases in giving.

Read the paper: http://www.people.hbs.edu/mnorton/small pope norton.pdf

 

Working Papers

Performance Pressure as a Double-Edged Sword: Enhancing Team Motivation While Undermining the Use of Team Knowledge

Abstract

In this paper, I develop and empirically test the proposition that performance pressure acts as a double-edged sword for teams, providing positive effects by enhancing team motivation to achieve good results while simultaneously triggering process losses. I conducted a multi-method field study of 78 audit and consulting teams from two global professional firms, revealing an irony of team life: even though motivated to perform well on a high-stakes project, pressured teams are more likely to engage in performance-detracting behaviors. Survey results show that, as performance pressure increases, team members begin to over-rely on general expertise while discounting domain-specific expertise, leading to suboptimal performance. I use longitudinal qualitative case studies to explore the underlying behavioral mechanisms that generate this outcome. Results also show that only domain-specific expertise-the kind that teams under-use when facing higher pressure-increases client-rated team performance. I thus find, paradoxically, that when teams need domain-specific expertise the most, they tend to use it the least, despite evidence suggesting they are highly motivated to do well on their task.

Download the paper: http://www.hbs.edu/research/pdf/09-126.pdf

Learning from My Success and from Others' Failure: Evidence from Minimally Invasive Cardiac Surgery

Abstract

Learning from past experience is central to an organization's adaptation and survival. A key dimension of prior experience is whether the outcome was successful or unsuccessful. While empirical studies have investigated the effects of success and failure in organizational learning, to date the phenomenon has received little attention at the individual level. Drawing on attribution theory in psychology, we investigate how individuals learn from both failure and success from their own past experience as well as the experience of others. For our empirical analyses we use 10 years of data from 71 cardiothoracic surgeons who completed over 6,500 procedures using a new technology for cardiac surgery. We find that individuals learn more from their own successes than from their own failures, while they learn more from the failures of others than they do from others' successes. We also find that individuals' prior successes and others' failures can help individuals to overcome their inability to learn from their own failures. Together, these findings offer both theoretical and practical insights into how individuals learn directly from their prior experience and indirectly from the experience of others.

Download the paper: http://www.hbs.edu/research/pdf/12-065.pdf

Why Do We Redistribute So Much but Tag So Little? The Principle of Equal Sacrifice and Optimal Taxation

Abstract

Tagging is a free lunch in conventional optimal tax theory because it eases the classic tradeoff between efficiency and equality. But tagging is used in only limited ways in tax policy. I propose one explanation: conventional optimal tax theory has yet to capture the diversity of normative principles with which society evaluates taxes. I generalize the conventional model to incorporate multiple normative frameworks. I then show that if the principle of equal sacrifice-a classic, comprehensive criterion of fair taxation proposed by John Stuart Mill and associated with the Libertarian normative framework-is given some weight in the social objective function, tagging generates costs that must be weighed against the benefits it generates through conventional channels. Only tags that are sufficiently predictive of ability, such as disability status, will be used. Calibrated simulations using micro data from the United States show that optimal policy may simultaneously include substantial redistribution across income-earning abilities, as in the standard model, and reject three prominently proposed tags-gender, race, and height-as in actual policy. This explanation for limited tagging also implies that optimal marginal tax rates at high incomes are lower than in standard analysis and closer to those observed in policy.

Download the paper: http://www.hbs.edu/research/pdf/12-064.pdf

 

Cases & Course Materials

LinkedIn Corporation

Francois Brochet and James Weber
Harvard Business School Case 112-006

The purpose of this case is to help students critically evaluate the market value of LinkedIn's stock following its recent IPO. In the context of strong investor appetite for social media companies, LinkedIn is the lamp bearer among U.S. companies in that industry that are considering tapping into public markets. The case can serve to illustrate the challenges of valuing an early-stage high-growth company with a great deal of uncertainty about fundamental value and how quoted prices might reflect expectations that are hard to justify. Regardless of which valuation method is employed (e.g., residual income, discounted cash flow, multiples), the case provides a platform (i) to map the firm's key success and risk factors into forecasts and estimates for its future performance and cost of capital and (ii) to critically assess the implied assumptions underlying the market's expectations. The case is best suited for a course on business valuation at all levels (undergraduate, MBA, executive programs).

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/112006-PDF-ENG

Business Intelligence Advisors (BIA), Inc.: Finding the Hidden Meaning in Corporate Disclosures

Lauren H. Cohen and Christopher Malloy
Harvard Business School Case 212-031

Business Intelligence Advisors, Inc. (BIA) was an investment research firm that had developed methods to help professional investors discern when CEOs and other executives in publicly traded firms "either lacked confidence in or were conveying less than complete or reliable information" in their public statements. BIA aimed to give its clients a better way of interpreting information provided in analyst calls, media interviews, and other events where executives publicly faced skeptical questions and had to give unscripted answers. BIA's methodology used verbal and nonverbal cues to identify executives who parsed their words too carefully or displayed discomfort with what they were saying. In analyzing the case, students will learn about the role of information in markets-how investors get it, how they process it, and why it matters. The case asks students to evaluate why BIA's methods might work and to analyze how BIA should leverage its approach to build a sustainable business.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/212031-PDF-ENG

Social Finance, Inc

Shawn Cole, Rawia Abdel Samad, Matt Berner, and Raluca Dragusanu
Harvard Business School Case 212-055

Social Finance attempts to design and launch a complex new financial instrument that will entice private capital to invest in social service provision.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/212055-PDF-ENG

China Life: Micro Insurance for the Poor

Shawn Cole and Lilei Xu
Harvard Business School Case 212-030

China Life must decide whether to accept the government's "invitation" to develop a micro-insurance product for the rural poor. Can it be done profitably?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/212030-PDF-ENG

Novo Nordisk: A Commitment to Sustainability

Robert G. Eccles and Michael P. Krzus
Harvard Business School Case 412-053

The case describes the early commitment of a European pharmaceutical company, Novo Nordisk, to integrated reporting. Novo Nordisk is one of the pioneers of integrated reporting, which emerged out of its commitment to a "triple bottom line approach to managing the company." The case describes the company's "Blueprint or Change Programme" designed to facilitate stakeholder engagement and communicate how the company delivered value to business and society. The case also provides an investor perspective on the company's integrated reporting efforts and its plans for how to improve it in the future.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/412053-PDF-ENG

Samasource: Give Work, Not Aid

Francesca Gino and Bradley R. Staats
Harvard Business School Case 912-011

Samasource sought to use work, not aid, for economic development. The company secured contracts for digital services from large companies in the United States and Europe, divided the work up into small pieces (called microwork), and then sent it to delivery centers in developing regions of the world for completion through a web-based interface. Different from traditional business process outsourcing companies, Samasource relied on a marginalized population of workers to execute the work. The case explores how the company can grow its capability to help individuals around the globe through the provision of digital work. This case includes color exhibits.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/912011-PDF-ENG

Gerson Lehrman Group: Managing Risks

Boris Groysberg, Paul M. Healy, and Sarah L. Abbott
Harvard Business School Case 412-004

It was June 2011 and Alexander Saint-Amand, president and CEO of Gerson Lehrman Group, the largest expert network firm globally, has found his firm once again in the midst of controversy. This controversy centered around a number of insider trading cases that had been brought against consultants working for competing expert network firms. While GLG was in no way implicated in these cases, and GLG had invested significantly in its compliance policies and controls in order to prevent the mishandling of public information, the entire industry was being impacted. Saint-Amand is faced with the challenge of deciding how best to handle this crisis.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/412004-PDF-ENG

Sustainable Tea at Unilever

Rebecca Henderson and Frederik Nellemann
Harvard Business School Case 712-438

Unilever's Lipton Tea had been successful with the first phase of its certification partnership with Rainforest Alliance. Now the company faced challenges in how to push forward with the transformation of more difficult parts of the supply chain and how to market sustainable tea in developing markets like India.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/712438-PDF-ENG

The Change Wheel: Elements of Systemic Change and How to Get Change Rolling

Rosabeth Moss Kanter
Harvard Business School Note 312-083

This note presents a framework and tool for leading fundamental systemic change in organizations and beyond. It identifies the 10 key elements of systemic change and arrays them along the spokes of a wheel, which suggests momentum and an interconnected rather than linear process for changing systems. All spokes must be engaged and then re-engaged to keep change moving. The practical model shows how spokes are related and reinforce one another and also presents a logical order for connecting them.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/312083-PDF-ENG

Healthymagination at GE Healthcare Systems

Vineet Kumar and V. Kasturi Rangan
Harvard Business School Case 512-039

Jeff Immelt, the CEO of GE, introduced a new innovation strategy named "healthymagination" in spring 2009. With cost, quality, and access as its three pillars, healthymagination ensures a strong focus for new product introduction efforts all around GE. But will this focus enable GE to achieve and maintain market leadership across a healthcare market that is being buffeted by strong currents, including cost pressures, changes in chronic disease patterns, and rationalization of buyer behavior? Moreover, healthcare spending is also increasing in emerging economies, which could provide a strong growth engine for the future. Tom Gentile, the CEO of GE Healthcare Systems (GEHS), a key player in the medical imaging market, wonders how the innovation strategy might respond to these changes. GE has historically been a technology leader, selling the most advanced equipment to a variety of medical establishments. Will a complete shift to healthymagination allow GE to demonstrate strong organic growth through innovation, as Immelt had charged executives at GE?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/512039-PDF-ENG

INNOVA-MEX's Bid for ENKONTROL

Ramana Nanda, William R. Kerr, and Carin-Isabel Knoop
Harvard Business School Case 812-008

In their second year, two Mexican HBS MBAs joined forces to start a search fund based in Mexico City. They had raised money to acquire an existing private company in Mexico with an initial enterprise value between $5 million and $15 million. Just seven months after raising the fund, they were about to close a deal on a target company, but the seller wants to renegotiate.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/812008-PDF-ENG

PerkinElmer—Developing Products in China for China

Vicki L. Sato, Christoph Jaeker, and Kareem Reda
Harvard Business School Case 612-032

Sym-Bio, an entrepreneurial Chinese diagnostic company with a product line in infectious disease testing, has agreed to be acquired by PerkinElmer, an international corporation with businesses in neonatal testing, life science services, and environmental health. Sym-Bio wants to accelerate its growth and competitive position in China through this strategic move, and PerkinElmer seeks to broaden its access to the Chinese marketplace, leverage the cost advantages of operating in China, and tap into the talent pool of young Chinese scientists. Strategic and operational integration of Sym-Bio into PerkinElmer is explored through the lens of the founder and CEO of Sym-Bio and that of the acquiring company.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/612032-PDF-ENG