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.
Any birthday cakes you proffer will be held against you
When individuals with the power to punish-say, police officers-are confronted with a social norm for leniency-say, a birthday-how do they respond? By amping up the punishment, according to Social Norms Versus Social Responsibility: Publishing Transgressions Under Conflicting Obligations, a new paper from Francesca Gino, Celia Moore, and Lamar Pierce. Surveying 10 years worth of DUI arrests, the authors were able to determine that officers were more punitive when it was the offender's birthday, which they hypothesize to be the case for two reasons. First, enforcers may overcompensate for the social pressure they feel to be lenient; second, this pressure could undermine the enforcer's sense of power, making them worry that they would lose professional credibility if they were to bow to any requests (real or imagined) for leniency.
Measuring the evolution of state capitalism
State capitalism, having gone through several reforms, is gaining influence in the global economy: 2005 saw not a single state-owned enterprise in Fortune Global 100's top 10 firms, while by 2010, that number (or lack thereof) had jumped to four. Many in favor of liberal capitalism have viewed this comeback with some concern; however, very little research has been done into the mechanics of state capitalism, even as it shifts away from its orthodox twentieth-century roots. In Leviathan Evolving: New Varieties of State Capitalism in Brazil and Beyond, Aldo Musacchio and Sergio G. Lazzarini examine the extent of state capitalism worldwide, while illuminating its economic implications. Providing theoretical perspectives to explain its evolution and current forms, the paper hopes to provide suggestions for interpreting state capitalism as it interacts with market capitalism on an ever-growing scale.
Procter and Gamble rethinks its analytics strategy
As of 2011, Procter and Gamble marketed 300 brands of personal care and cleaning products to 4.2 billion customers dispersed over 180 countries. Their total sales for the 2011 fiscal year amounted to over $80 billion—such success as can be attributed to a restructuring initiative that P&G undertook in 1999. Called Organization 2005, the initiative aimed to reorganize local businesses in order to better harness the company's global scale. A key aspect of the restructuring was to rethink the way analytics methods were used. Data had previously been stored in disparate systems, but as part of Organization 2005, P&G brought together the data collection activities, instilling standards for data type and quality. "Managing with Analytics at Procter and Gamble," by Thomas H. Davenport, Marco Iansiti, and Alain Serels, explores how these measures helped bring the company greater success through heightened efficiency and rapidly-implemented data findings.
Abstract—In this book we describe the transformation of state capitalism from a model in which governments owned and ran corporations and broadly controlled the allocation of financial resources into two new varieties of state capitalism: Leviathan as a majority and as a minority investor. In this book we study the implications of such transformation using detailed data from Brazil between 1976 and 2009. In the Leviathan as a majority investor, governments have started to list state-owned enterprises, have selected professional managers to run them, and have given them more financial autonomy. We argue that the transformation from owner and manager to majority shareholder has reduced many agency problems commonly faced by SOEs, but has not reduced the temptation governments face to intervene in the operation of large strategic enterprises. In the Leviathan as a minority shareholder mode, governments have small equity ownership in corporations and in general do not intervene in management. We find evidence that such equity investments allow firms to alleviate capital constraints and increase capital expenditures. Yet we also find instances in which governments use their minority positions to intervene in the management of firms, especially in natural resource industries.
Publisher's link: http://www.people.hbs.edu/amusacchio/Leviathan/toc.htm
Inflated Applicants: Attribution Errors in Performance Evaluation by Professionals
Abstract—When explaining others' behaviors, achievements, and failures, it is common for people to attribute too much influence to disposition and too little influence to structural and situational factors. We examine whether this tendency leads even experienced professionals to make systematic mistakes in their selection decisions, favoring alumni from academic institutions with high grade distributions and employees from forgiving business environments. We find that candidates benefiting from favorable situations are more likely to be admitted and promoted than their equivalently skilled peers. The results suggest that decision-makers take high nominal performance as evidence of high ability and do not discount it by the ease with which it was achieved. These results clarify our understanding of the correspondence bias using evidence from both archival studies and experiments with experienced professionals. We discuss implications for both admissions and personnel selection practices.
Abstract—In this paper, we describe an operational methodology for characterising the architecture of technical systems and demonstrate its application to a sample of software releases. Our methodology is based on network graphs and allows us to identify/define three fundamental architectural patterns, which we label core-periphery, multi-core, and hierarchical. Applying our methodology to a sample of 1,286 software releases from 17 applications, we find that 70%-80% of releases possess a core-periphery architecture under our classification scheme. This architecture is characterized by having a single dominant cyclic group (the Core) that is large relative to other cyclic groups and above a threshold with respect to system size. We find that the size of the Core varies widely, even for systems that perform the same function. These differences appear to be associated with different models of development-open, distributed organizations develop systems with smaller Cores, while closed collocated organizations develop systems with larger Cores. Our findings represent a first step in establishing some stylized facts about the fine-grained structure of large, real-world technical systems.
Download working paper: http://ssrn.com/abstract=2277795
Abstract—We consider market rules for the transfer of IP addresses, numeric identifiers required by all computers connected to the Internet. Excessive fragmentation of IP address blocks causes growth in the Internet's routing table, which is socially costly, so an IP address market should discourage subdividing IP address blocks more than necessary. Yet IP address transfer rules also need to facilitate purchase by the networks that need the addresses most, from the networks that value them least. We propose a market rule that avoids excessive fragmentation while almost achieving social efficiency, and we argue that implementation of this rule is feasible despite the limited powers of central authorities. We also offer a framework for the price trajectory of IP addresses. In a world without uncertainty, the unit price of IP addresses is constant until all addresses are in use and begins to decrease at that time. With uncertainty, the price before that time is a martingale, and the price trajectory afterwards is a supermartingale. Finally, we explore the role of rental markets in sharing information about address value and assuring allocative efficiency.
Download working paper: http://ssrn.com/abstract=1934217
Abstract—This paper combines experimental and field data to examine how those with discretion over punishment respond when confronted with social norms of leniency. Specifically, we test how individuals who have a responsibility to punish transgressions behave when confronted with the social norm of preferential treatment on people's birthdays. We first establish the existence of this social norm using a scenario study. We then show that individuals behave in the opposite way than that suggested by the social norm: they punish transgressors more severely on their birthdays, both in the realm of actual drunk driving enforcement and in an experimental lab setting where participants were given the responsibility to punish. An additional experiment provides evidence that this effect is driven by psychological reactance rather than by overcompensation for potential bias. We discuss both the theoretical and practical implications of our findings.
Download working paper: http://ssrn.com/abstract=2280370
The Entrepreneurial Gap: How Managers Adjust Span of Accountability and Span of Control to Implement Business Strategy
Abstract—This study focuses on the relationship between business strategy, organization structure, and diagnostic control systems. The project analyzes data from 75 field studies to illustrate how managers adjust span of accountability and span of control to motivate different levels of innovation and entrepreneurial behavior. Six propositions are derived inductively about when, why, and how managers make these choices.
Download working paper: http://ssrn.com/abstract=2280355
Cases & Course Materials
- Harvard Business School Case 613-045
Senior management at P&G has put a strong emphasis on using data to make "better, smarter, real-time business decisions." The Global Business Services (GBS) organization has developed tools, systems, and processes to provide managers throughout P&G with direct access to up-to-date data and advanced analytics. In addition, GBS has embedded analysts within the business units to work alongside leaders and managers in driving real-time information-based decision making. Equipped with the tools provided by GBS, Alan Torres, vice president of North America Fabric Care, must finalize the forecast for P&G's laundry detergent sales. Results for the two months since introducing concentrated powder laundry detergent in select retailers saw a surprising jump in sales of over 10%, but would the trend continue as the concentrated detergents were introduced across North America?
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- Harvard Business School Case 813-119
The funded search model is one alternative for individuals who, at some point in their career, want to run their own companies. This note looks at the funded search as a means to entrepreneurship through acquisition and describes the path to buy and run a business using debt and equity as a means of financing the purchase. While applicable to an early career choice, many of the process steps are applicable to unfunded searches at later stages of a career.
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