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.
Banks for poverty prevention
Overborrowing is a major factor in deciding who remains impoverished and who is given a second chance. In the US, 8.2 percent of all households are without a bank account, and, therefore, virtually without savings, which puts them at greater risk of taking out short-term loans that they have no hope of paying back. "Do Savings Constraints Lead to Indebtedness? Experimental Evidence from Access to Formal Savings Accounts in Chile," by Felipe Kast and Dina Pomeranz, suggests that simply by making savings accounts accessible to low-income residents, countries can decrease the amount of short-term debt that citizens owe, while evening out rates of consumption and creating a more stable economy. Given free, easy-to-access savings accounts, the study's 3,500 low-income Chilean participants were found not only to have less debt and more consistent spending habits, but also less anxiety about economic difficulties and a more optimistic outlook.
Are fearsome bosses effective bosses?
In judging leaders, we often look for these key characteristics: how likeable and warm they are, and how strong and competent they are. "Connect, Then Lead," by Amy J.C. Cuddy, Matthew Kohut, and John Neffinger, explores just why these traits are found universally to shape human interaction. Ultimately, by gauging someone's warmth and competence, we are able to answer two critical questions: "What are these person's intentions towards me?" and "Is he or she capable of acting on these intentions?" Those who are perceived as being highly competent but lacking in warmth are often envied, while those who are warm but incompetent are pitied. In striking a balance between these characteristics, however, the authors say it is best for leaders to prioritize warmth, demonstrating to employees that they are approachable and well-intentioned. Otherwise, even the most competently-run organization can be undone by a lack of trust and mutual respect.
How businesses can help with urban development
Within the next thirty-odd years, the number of people living in cities will have nearly doubled, from 3.6 billion to 6 billion—a growth rate that vastly outmatches the infrastructure and resources currently available. While most businesses consider urban development to be the realm of local government, many governments are too financially or politically unable to develop and undertake the initiatives that would make their cities more sustainable. So how can businesses help cities reduce waste and maximize resources, while still turning a profit? The answer, according to John D. Macomber's "Building Sustainable Cities," rests on three pillars: business models that profit by optimizing resources; financial engineering that encourages investing in efficiency; and careful selection of markets. Handled wisely, this strategy can help generate value for businesses in the long run, while keeping the cities themselves competitive, livable, and environmentally friendly.
Abstract—Change is hard, especially in a large organization. Yet some leaders succeed-often spectacularly-at transforming their workplaces. What makes them able to exert this sort of influence when the vast majority can't? The authors tracked 68 change initiatives in the UK's National Health Service, an organization whose size, complexity, and tradition can make reform difficult. They discovered several predictors of change agents' success-all of which emphasize the importance of networks of personal relationships: 1) Change agents who were central in the organization's informal network had a clear advantage, regardless of their position in the formal hierarchy. 2) People who bridged disconnected groups or individuals were more effective at implementing dramatic reforms. The resisters in their networks did not necessarily know one another and so were unlikely to form a coalition. Change agents with cohesive networks, in which all individuals were connected, were better at instituting minor changes. Their contacts rallied around the initiative and helped convince others of its importance. 3) Being close to people who were ambivalent about a change was always beneficial. In the end, fence-sitters were reluctant to disappoint a friend. But close relationships with resisters were a double-edged sword: such ties helped push through minor initiatives but were a hindrance when attempting major change.
Publisher's link: http://hbr.org/2013/07/the-network-secrets-of-great-change-agents/ar/1
Abstract—In puzzling over whether it's better to be feared or loved as a leader, Machiavelli famously said that, because it's nigh impossible to do both, leaders should opt for fear. Research from Harvard Business School's Amy Cuddy and consultants Matthew Kohut and John Neffinger refute that theory, arguing that leaders would do much better to begin with "love"-that is, to establish trust through warmth and understanding. Most leaders today approach their jobs by emphasizing competence, strength, and credentials. But without first building a foundation of trust, they run the risk of eliciting fear, resentment, or envy. Beginning with warmth allows trust to develop, facilitating both the exchange and the acceptance of ideas-people really hear your message and become open to it. Cultivating warmth and trust also boosts the quantity and quality of novel ideas that are produced. The best way to gain influence is to combine warmth and strength-as difficult as Machiavelli says that may be to do. In this article, the authors look at research from behavioral economics, social psychology, and other disciplines and offer practical tactics for leaders hoping to project a healthy amount of both qualities.
Publisher's link: http://hbr.org/2013/07/connect-then-lead/ar/1
The Dynamic Effects of Bundling as a Product Strategy
Abstract—Several key questions in bundling have not been empirically examined: Is mixed bundling more effective than pure bundling or pure components? Does correlation in consumer valuations make bundling more or less effective? Does bundling serve as a complement or substitute to network effects? To address these questions, we develop a consumer-choice model from micro-foundations to capture the essentials of our setting, the handheld video game market. We provide a framework to understand the dynamic, long-term impacts of bundling on demand. The primary explanation for the profitability of bundling relies on homogenization of consumer valuations for the bundle, allowing the firm to extract more surplus. We find bundling can be effective through a novel and previously unexamined mechanism of dynamic consumer segmentation, which operates independent of the homogenization effect, and can in fact be stronger when the homogenization effect is weaker. We also find that bundles are treated as separate products (distinct from component products) by consumers. Sales of both hardware and software components decrease in the absence of bundling, and consumers who had previously purchased bundles might delay purchases, resulting in lower revenues. We also find that mixed bundling dominates pure bundling and pure components in terms of both hardware and software revenues. Investigating the link between bundling and indirect network effects, we find that they act as substitute strategies, with a lower relative effectiveness for bundling when network effects are stronger.
From Social Control to Financial Economics: The Linked Ecologies of Economics and Business in Twentieth Century America
Abstract—This article draws on historical material to examine the co-evolution of economic science and business education over the course of the twentieth century, showing that fields evolve not only through internal struggles but also through struggles taking place in adjacent fields. More specifically, we argue that the scientific strategies of business schools played an essential-if largely invisible and poorly understood-role in major transformations in the organization and substantive direction of social-scientific knowledge, and specifically economic knowledge, in twentieth century America. We use the Wharton School as an illustration of the earliest trends and dilemmas (c. 1900-1930), when business schools found themselves caught between their business connections and their striving for moral legitimacy in higher education. Next, we look at the creation of the Carnegie Tech Graduate School of Industrial Administration after World War II. This episode illustrates the increasingly successful claims of social scientists, backed by philanthropic foundations, on business education and the growing appeal of "scientific" approaches to decision making and management. Finally, we argue that the rise of the Graduate School of Business at the University of Chicago from the 1960s onwards (and its closely related cousin at the University of Rochester) marks the decisive ascendancy of economics, and particularly financial economics, in business education over the other behavioral disciplines. We document the key role of these institutions in diffusing "Chicago-style" economic approaches-offering support for deregulatory policies and popularizing narrowly financial understandings of the firm-that sociologists have described as characteristic of the modern neo-liberal regime.
Fashioning an Industry: Socio-cognitive Processes in the Construction of Worth of a New Industry
Abstract—This study of the high-end fashion industry in India examines the process of construction of the worth of a new industry. Analyses of data from multiple sources revealed that framing by early entrepreneurs and the socio-cognitive processes that resulted from the transactions of field-constituents with the new industry constructed the worth of the industry. These socio-cognitive processes-curation and certification, commentary and critique, and co-presentation, comparison, and commensuration-enabled broader audiences to make sense of the industry and comprehend its worth. The findings form the basis of a general model of the social construction of worth through a process of distributed sanctification, contributing to the growing literature on social construction of value.
Abstract—The conventional wisdom about how best to pursue growth-launch a slew of initiatives in high-potential areas; appoint some promising young managers to lead them; locate them safely away from the established businesses-is a recipe for failure, according to the authors. Meanwhile, CEOs spend too much time on managing today's earnings and too little time on building the kind of learning organization and culture that growth requires. This article explores six common mistakes that executives make in this arena: 1) Failing to provide the right kind of oversight. The CEO should spend meaningful time with the team and with potential customers; 2) Not putting the best, most experienced talent in charge. Seasoned executives in the core businesses, rather than ambitious young MBAs, should be assigned to growth initiatives; 3) Assembling the wrong team and staffing up prematurely. CEOs should focus on capabilities, not who's available, and staff up only when the strategy, business model, and value proposition are clear; 4) Taking the wrong approach to performance assessment. Milestones relevant to each stage of an initiative's development should be established, and key assumptions in the business plan should be linked to the financial forecast; 5) Not knowing how to fund and govern a start-up. The funding of early-stage ventures should be separated from the corporation's annual budget cycle; 6) Failing to leverage the organization's core capabilities. CEOs must play a central role in helping growth initiatives tap the resources of the core businesses.
Publisher's link: http://hbr.org/2013/07/six-ways-to-sink-a-growth-initiative/ar/1
Abstract—By 2050 the number of people living in cities will have nearly doubled, to 6 billion, and the problems created by this rampant urbanization are among the most important challenges of our time. Of all resource-management issues, the author argues, water, electricity, and transit deserve the greatest focus. Every other service a competitive city provides-functional housing, schools, hospitals, stores, police and fire departments, heating, cooling, waste management-depends on a reliable infrastructure for those three resources. Many corporations and investors assume that fixing cities is the purview of government. But governments around the world are stuck-financially, politically, or both. Implementing solutions to the problems of urbanization requires large amounts of capital, exceptional managerial skill, and significant alignment of interests. All these abound in the private sector. Thus major opportunities exist for businesses that can create and claim value by improving resource efficiency. The products and services that new (or legacy) cities will require, and that provide the return investors and entrepreneurs need, optimize both technological sophistication and financial sophistication-approaches designed to attract capital by offering different levels of risk and return, different cash-flow priorities, and opportunities for both short-term and long-term investment. The author cites a number of companies that have moved toward or into what he calls "the efficiency frontier." These include Sarvajal, in India, which saves money and eliminates waste by selling direct to customers through its "water ATMs"; the Boston-based EnerNOC, which manages electricity production and consumption to reduce spikes in demand; and EMBARQ, based in Washington, DC, which coordinates the interests of business and government to organize city transit services.
Publisher's link: http://hbr.org/2013/07/building-sustainable-cities/ar/1
Abstract—In theory, the risk management groups of two British banks-Saxon and Anglo-had the same influence in their organizations. But in practice, they did not: Saxon's was engaged in critical work throughout the bank, while Anglo's had little visibility outside its areas of expertise. In their study of these two financial institutions, the authors identified four competencies-trailblazing, toolmaking, teamwork, and translation-that help functional leaders or groups compete for top management's limited attention and increase their impact. Anglo's risk managers were strong in only some of the competencies, but Saxon's were strong in all four. They consistently scanned the internal and external environment for important issues to which they could apply a risk management perspective (trailblazing) and then developed tools-such as quarterly risk reports-that spread their expertise (toolmaking). While controlling the tools' design and implementation, the risk managers incorporated business managers' insights (teamwork) and made sure everyone could understand the findings (translation). Ultimately, experts' roles must fit the organization's strategy and structural needs. In some situations, functional experts can raise their profile by cultivating just two of the competencies. But those who are strong in all four are likely to be the most influential.
Publisher's link: http://hbr.org/2013/07/how-experts-gain-influence/ar/1
Abstract—Three years ago, when a cave-in at the San José mine in Chile trapped 33 men under 700,000 metric tons of rock, experts estimated the probability of getting them out alive at less than 1%. Yet, after spending a record 69 days underground, all 33 were hoisted up to safety. The inspiring story of their rescue is a case study in how to lead in situations where the stakes, risk, and uncertainty are incredibly high and time pressure is intense. Today executives often find themselves in similar straits. When they do, many feel torn. Should they be directive, taking charge and commanding action? Or should they be empowering, enabling innovation and experimentation? As the successful example of André Sougarret, the chief of the mine rescue operation, shows, the answer is yes-to both. The choice is a false dichotomy. Implementing this dual approach involves three key tasks. Each has directive and enabling components. The first task is envisioning, which requires instilling both realism and hope. The second task is enrolling, which means setting clear boundaries for who is on and off the team, but inviting in helpful collaborators. The third task is engaging-leading disciplined execution while encouraging innovation and experimentation. The authors of this article describe how Sougarret ably juggled all of these tasks, orchestrating the efforts of hundreds of people from different organizations, areas of expertise, and countries in an extraordinary mission that overcame impossible odds.
Reputational Contagion and Optimal Regulatory Forbearance
Abstract—Existing studies suggest that systemic crises may arise because banks either hold correlated assets or are connected by interbank lending. This paper shows that common regulation is also a conduit for interbank contagion. One bank's failure may undermine confidence in the banking regulator's competence, and, hence, in other banks chartered by the same regulator. As a result, depositors withdraw funds from otherwise unconnected banks. The optimal regulatory response to this behavior can be privately to exhibit forbearance to a failing bank. We show that regulatory transparency improves confidence ex ante but impedes regulators' ability to stem panics ex post.
Cumulative Innovation & Open Disclosure of Intermediate Results: Evidence from a Policy Experiment in Bioinformatics
Abstract—Recent calls for greater openness in our private and public innovation systems have particularly urged for more open disclosure and granting of access to intermediate works-early results, algorithms, materials, data and techniques-with the goals of enhancing overall research and development productivity and enhancing cumulative innovation. To make progress towards understanding implications of such policy changes we devised a large-scale field experiment in which 733 subjects were divided into matched independent subgroups to address a bioinformatics problem under either a regime of open disclosure of intermediate results or, alternatively, one of closed secrecy around intermediate solutions. We observe the cumulative innovation process in each regime with fine-grained measures and are able to derive inferences with a series of cross-sectional comparisons. Open disclosures led to lower participation and lower effort but nonetheless led to higher average problem-solving performance by concentrating these lesser efforts on the most performant technical approaches. Closed secrecy produced higher participation and higher effort, while producing less correlated choices of technical approaches that participants pursued, resulting in greater individual and collective experimentation and greater dispersion of performance. We discuss the implications of such changes to the ongoing theory, evidence, and policy considerations with regards to cumulative innovation.
Download working paper: http://ssrn.com/abstract=2288746
Abstract—We examine which independent directors are held accountable when investors sue firms for financial and disclosure related fraud. Investors can name independent directors as defendants in lawsuits, and they can vote against their re-election to express displeasure over the directors' ineffectiveness at monitoring managers. In a sample of securities class-action lawsuits from 1996 to 2010, about 11% of independent directors are named as defendants. The likelihood of being named is greater for audit committee members and directors who sell stock during the class period. Named directors receive more negative recommendations from Institutional Shareholder Services (ISS), a proxy advisory firm, and significantly more negative votes from shareholders than directors in a benchmark sample. They are also more likely than other independent directors to leave sued firms. Overall, shareholders use litigation along with director elections and director retention to hold some independent directors more accountable than others when firms experience financial fraud.
Download working paper: http://ssrn.com/abstract=2285776
Abstract—Paul Kleindorfer was among the first to weigh in on and nurture the stream of Sustainable Operations Management. The thoughts laid out here are based on conversations we had with Paul relating to the drivers underlying sustainability as a management issue: population and per capita consumption growth, the limited nature of resources and sinks, and the responsibility and exposure of firms to ensuing ecological risks and costs. We then discuss how an operations management lens contributes to the issue and criteria to help the Sustainable Operations Management perspective endure. This article relates to a presentation delivered by Morris Cohen for Paul's Manufacturing and Service Operations Management Distinguished Fellows Award, given at Columbia University, June 18, 2012. We wrote this article at Paul's request.
Download working paper: http://ssrn.com/abstract=2241548
Helping You Help Me: The Role of Diagnostic (In)Congruence in the Helping Process within Organizations
Abstract—Through an inductive, multi-method field study at a major design firm, we investigated the helping process in project work and how that process affects the success of a helping episode, as perceived by help-givers and/or -receivers. We used daily diary entries and weekly interviews from four project teams, and a separate sample of critical incident interviews, to induce process models of successful and unsuccessful helping episodes. We found that, in unsuccessful episodes, help-givers and -receivers maintained incongruent expectations and project understandings throughout the episode, which we call diagnostic incongruence. In contrast, the parties in successful episodes engaged in aligning practices that fostered shared expectations and project understandings (i.e., diagnostic congruence). Importantly, aligning practices in successful episodes occurred before or at the beginning of episodes. We also found that people's assessments of unsuccessful episodes were often marked by intense emotionality, which sometimes led them to disregard whether the helping resulted in instrumental progress. We discuss the implications of our process model for theory and practice.
Download working paper: http://ssrn.com/abstract=2288795
Do Savings Constraints Lead to Indebtedness? Experimental Evidence from Access to Formal Savings Accounts in Chile
Abstract—Poverty is often characterized not only by low and unstable income, but also by heavy debt burdens. We find that the inability to save contributes to this indebtedness. Access to free savings accounts substantially decreases participants' propensity to use short-term credit. In addition, participants who experience an economic shock have less need to reduce consumption and subjective well-being improves significantly. Precautionary savings and credit therefore act as substitutes in providing self-insurance, and participants prefer saving more when given the choice. Take-up patterns suggest that requests by others for participants to share their resources are a key obstacle to saving.
Download working paper: http://www.hbs.edu/faculty/product/45072
Abstract—We test a method that was designed and used previously to reveal the hidden internal architectural structure of software systems. The focus of this paper is to test if it can also uncover new facts about the components and their relationships in an enterprise architecture, i.e., if the method can reveal the hidden external structure between architectural components. Our test uses data from a biopharmaceutical company. In total, we analyzed 407 components and 1,157 dependencies. Results show that the enterprise structure can be classified as a core-periphery architecture with a propagation cost of 23%, core size of 32%, and architecture flow through of 67%. We also found that business components can be classified as control elements, infrastructure components as shared, and software applications as belonging to the core. These findings suggest that the method could be effective in uncovering the hidden structure of an enterprise architecture.
Download working paper: http://www.hbs.edu/faculty/product/45048
Cases & Course Materials
- Harvard Business School Case 813-104
The Andrew Sullivan and Faraway Ltd. case series focuses on entrepreneurial selling and is based on an older case study, Deaver Brown and Cross River Inc. (HBS No. 394-042). It concerns two entrepreneurs, Andrew Sullivan and Hope Abasi, who have designed an innovative pushchair (baby stroller) and, a year later, are looking for an order from a large retailer. The case requires students to prepare, deliver, and evaluate Sullivan's sales calls on two important retail buyers, Sam Cartwright of Mothercare and Anthony Pierce of John Lewis. The main case provides relevant background information about Faraway's market opportunity, business model economics, and scaling requirements. The (B) case provides information about Sam Cartwright's view of his job and supplier issues. The (C) case does the same for Anthony Pierce.
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- Harvard Business School Case 813-105
Supplements the (A) case.
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- Harvard Business School Case 813-106
Supplements the (B) case.
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- Harvard Business School Case 613-053
Describes Terrapin Bright Green, an environmental consulting and strategic planning firm, and its approach for creating integrative, systematic solutions to green-building conundrums through consulting, research, and policy-related activities. Emphasis is placed on the role of integrated design and the intensive team-based "charrette" process in Terrapin's consulting work as well as on the design trends of biophilia and biomimicry. The case focuses on the sustainable redesign of 111 8th Avenue, New York, New York, to explore the challenge of managing strategic, intangible services in the context of Terrapin's more concrete focus historically. A serendipitous discovery leads the founders to consider how the firm could systematize its process while maintaining the flexibility that made it successful.
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- Harvard Business School Case 413-107
Ibrahim Dabdoub, the group chief executive of the National Bank of Kuwait (NBK), reflects on his past 30 years at the helm of the bank. Under his leadership, NBK grew from a small local bank to one of the preeminent financial institutions in the region. However, following the global financial crisis of 2008 and the Arab Spring, NBK had to slow its regional expansion. Dabdoub wonders if the bank is positioned to thrive and fulfill its collective ambition to become the Arab regional bank by 2020.
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- Harvard Business School Case 313-026
Law Professor Ronald Sullivan was asked to lead a turnaround of the Orleans Public Defenders as a one-year assignment following Hurricane Katrina in 2005. The office was underfunded and had perverse incentives embedded throughout the system. Sullivan's new vision to rectify the challenges was not readily accepted by judges and lawyers who benefitted from the flawed system and put up resistance. The case follows Sullivan and his team in their efforts to bring about positive systemic change to the Orleans Public Defenders and at a minimum live up to the principles provided by the American Bar Association.
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- Harvard Business School Case 313-103
In 1980, the city of Kunshan was mere countryside, registering neither on the Chinese government's nor the international business community's radar. By 2010, Kunshan had become the richest city per capita in China and a global technology powerhouse, home to companies such as Foxconn, Compal Electronics, and Wistron. Kunshan's entrepreneurial, self-starting development combined with strategic location and high levels of local government support had been responsible for Kunshan's tremendous growth and success. How could it continue to grow at a rate to maintain its leadership among Chinese entrepreneurial cities? And would the founding of an international, joint-venture campus with Duke and Wuhan University keep the city of Kunshan innovative and ahead of the curve?
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- Harvard Business School Case 713-039
On January 18, 2012, President Obama rejected TransCanada's application for a "national interest" determination to approve construction of the Keystone XL Pipeline. Keystone XL was a 1,700 mile long, 36-inch diameter pipeline to transport 1.1 million barrels a day of Canadian heavy oil from Alberta (and shale oil from Montana) to the American Gulf Coast. But the American environmental community had focused all its resources on stopping Keystone XL-to them, a symbol of the nation's refusal to deal with climate change. Now the head of Keystone had to figure out what had gone wrong and decide what to do next in order to get the project approved.
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