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.

October 1

Do lazy colleagues make you exercise less?

Workers at a large corporation started exercising less once they discovered the lower-level effort demonstrated by some colleagues. Researchers Leslie John and Michael I. Norton call this behavior a convergence to the lowest common denominator. "This research demonstrates the impact of the lowest common denominator in physical activity: people's activity levels tend to converge to the lowest-performing members of their groups," the scholars report in the journal Health Psychology. Employers may want to take note when they set up their own wellness programs.

From failure to victory in Olympics coverage

NBC lost $223 million from its broadcast of the 2010 Vancouver Winter Games, but just two years later made a profit (thanks in part to $1.25 billion in advertising revenues) and many new viewers from the London Games. What changed? As all eyes turn to the 2016 competition in Rio De Janeiro, Stephen Greyser and Vadim Kogan produce the numbers and insights in their working paper, NBC and the 2012 London Olympics: Unexpected Success."

Case: Pret A Manger

London-based sandwich shop Pret A Manger was a hit in the UK and also when it expanded to cities including New York. But charged to grow 15 percent annually by its board, Pret's managers had to weigh the pros and cons of creating a new model to fill hungry patrons. Among its teaching points, the case "helps students understand the role of employee management systems in creating consistent service experiences and introduces a set of innovative employee management practices," according to its authors Frances X. Frei, Rick Goldberg, and Stephanie van Sice.

 

Publications

  • August 2013
  • Journal of Economic Behavior & Organization

Religion, Politician Identity and Development Outcomes: Evidence from India

By: Bhalotra, Sonia, Guilhem Cassan, Irma Clots-Figueras, and Lakshmi Iyer

Abstract—This paper investigates whether the religious identity of state legislators in India influences development outcomes, both for citizens of their religious group and for the population as a whole. Using an instrumental variables approach derived from a regression discontinuity, we find that increasing the political representation of Muslims improves health and education outcomes in the district from which the legislator is elected. We find no evidence of religious favoritism: Muslim children do not benefit more from Muslim political representation than children from other religious groups.

Publisher's link: http://www.people.hbs.edu/liyer/BCCI_JEBO_Final_Sept2013.pdf

  • August 2013
  • Contemporary Accounting Research

The Role of Performance Measures in the Intertemporal Decisions of Business Unit Managers

By: Bouwens, Jan, Margaret A. Abernethy, and Laurence van Lent

Abstract—Accounting performance measures are often argued to lead to short-sighted behavior by managers facing intertemporal decisions. We assess the association between different types of performance measures and the time horizon of business unit managers who have profit responsibility. Our results, based on a sample of 105 managers, indicate that accounting return measures direct business unit managers' attention toward longer-term activities. Non-financial measures similarly direct managerial attention toward longer-term activities, although not to the same degree as accounting return measures. We conclude that accounting return measures can balance out potential congruity problems associated with the profit measures by directing managerial attention to activities that have longer-term consequences on firm performance.

Publisher's link: http://onlinelibrary.wiley.com/doi/10.1111/j.1911-3846.2012.01178.x/abstract

  • August 2013
  • Journal of Monetary Economics

Cyclicality of Credit Supply: Firm Level Evidence

By: Ivashina, Victoria, and Bo Becker

Abstract—Theory predicts that there is a close link between bank credit supply and the evolution of the business cycle. Yet fluctuations in bank-loan supply have been hard to quantify in the time series. While loan issuance falls in recessions, it is not clear if this is due to demand or supply. We address this question by studying firms' substitution between bank debt and non-bank debt (public bonds) using firm-level data. Any firm that raises new debt must have a positive demand for external funds. Conditional on issuance of new debt, we interpret firm's switching from loans to bonds as a contraction in bank credit supply. We find strong evidence of substitution from loans to bonds at times characterized by tight lending standards, high levels of non-performing loans and loan allowances, low bank share prices, and tight monetary policy. The bank-to-bond substitution can only be measured for firms with access to bond markets. However, we show that this substitution behavior has strong predictive power for bank borrowing and investments by small, out-of-sample firms. We consider and reject several alternative explanations of our findings.

Publisher's link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1572699

  • August 2013
  • Journal of Finance

Reaching for Yield in the Bond Market

By: Ivashina, Victoria, and Bo Becker

Abstract—Reaching for yield-the propensity to buy riskier assets in order to achieve higher yields-is believed to be an important factor contributing to the credit cycle. This paper analyses this phenomenon in the corporate bond market. Specifically, we show evidence for reaching for yield among insurance companies, the largest institutional holders of corporate bonds. Insurance companies have capital requirements tied to the credit ratings of their investments. Conditional on ratings, insurance portfolios are systematically biased toward higher yield, higher CDS bonds. This behavior appears to be related to the business cycle, being most pronounced during economic expansions. It is also more pronounced for the insurance firms for which regulatory capital requirements are more binding. The results hold both at issuance and for trading in the secondary market and are robust to a series of bond and issuer controls, including issuer fixed effects as well as liquidity and duration. Comparison of the ex-post performance of bonds acquired by insurance companies does not show outperformance but higher volatility of realized returns.

Publisher's link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2065841

  • August 2013
  • Health Psychology

Converging to the Lowest Denominator in Physical Health

By: John, Leslie, and Michael I. Norton

Abstract—This research examines how access to information on peer health behaviors affects one's own health behavior. Methods: We report the results of a randomized field experiment in a large corporation in which we introduced walkstations (treadmills attached to desks that enable employees to walk while working), provided employees with feedback on their own and their co-workers' usage, and assessed usage over six months. We report how we determined our sample size, as well as all data exclusions, manipulations, and measures in the study. Results: Walkstation usage declined most when participants were given information on co-workers' usage levels, due to a tendency to converge to the lowest common denominator-their least-active co-workers. Conclusion: This research demonstrates the impact of the lowest common denominator in physical activity: people's activity levels tend to converge to the lowest-performing members of their groups. This research adds to our understanding of the factors that determine when the behavior of others impacts our own behavior for the better-and the worse.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=45468

  • August 2013
  • Empirical Methods in Natural Language Processing

Where Not to Eat? Improving Public Policy by Predicting Hygiene Inspections Using Online Reviews

By: Kang, Jun Seok, Polina Kuznetsova, Michael Luca, and Yejin Choi

Abstract—Restaurant hygiene inspections are often cited as a success story of public disclosure. Hygiene grades influence customer decisions and serve as an accountability system for restaurants. However, cities (which are responsible for inspections) have limited resources to dispatch inspectors, which in turn limits the number of inspections that can be performed. We argue that Natural Language Processing (NLP) can be used to improve the effectiveness of inspections by allowing cities to target restaurants that are most likely to have a hygiene violation. In this work, we report the first empirical study demonstrating the utility of review analysis for predicting restaurant inspection results.

Publisher's link: http://people.hbs.edu/mluca/hygiene.pdf

  • August 2013
  • MIT Sloan Management Review

Using Open Innovation to Identify the Best Ideas

By: King, Andrew, and Karim R. Lakhani

Abstract—Which parts of your innovation processes should you open up to the wider world? To reap the benefits of open innovation, executives must understand what to open, how to open it, and how to manage the resulting problems. According to authors Andrew King of Dartmouth College's Tuck School of Business and Karim R. Lakhani of the Harvard Business School and the NASA Tournament Lab, many organizations "are finding that making open innovation work can be more complicated than it looks."

Publisher's link: http://sloanreview.mit.edu/article/using-open-innovation-to-identify-the-best-ideas/

  • August 2013
  • Journal of Economics & Management Strategy

Ex-Ante Agreements in Standard Setting and Patent Pool Formation

By: Llanes, Gastón, and Joaquín Poblete

Abstract—We present a model of standard setting and patent-pool formation. We study the effects of alternative standard-setting and pool-formation rules on technology choice, prices, and welfare. We find three main results. First, we show that allowing patent pools may reduce welfare when standards are negotiated and patent pools need to be ex-post incentive compatible. Second, we show that ranking combinations of standard-setting and pool-formation rules in welfare terms when patent pools need to be ex-post incentive compatible is not possible. Third, we show that allowing firms to sign ex-ante agreements regarding pool participation dominates (in terms of welfare) any other policy rule. This policy does not require the standard-setting organization to have information on patent ownership, the terms of license agreements, or the value added of patents.

Publisher's link: http://escueladeadministracion.uc.cl/images/publicaciones/llanespoblete2.pdf

  • August 2013
  • MIT Sloan Management Review

Spurring Innovation Through Competitions

By: MacCormack, Alan, Fiona Murray, and Erika Wagner

Abstract—Alan MacCormack, Fiona Murray, and Erika Wagner examine the phenomenon of corporations using innovation contests. They write: "Companies are searching for better ways to identify and exploit novel solutions. Increasingly, they are discovering that many of the very best ideas lie outside their organizations, in an ecosystem of potential innovators who possess wide-ranging skills and knowledge."

Publisher's link: http://sloanreview.mit.edu/article/spurring-innovation-through-competitions/

  • August 2013
  • Journal of Financial Economics

Networks and Productivity: Causal Evidence from Journal Editor Rotations

By: Parsons, Christopher, J. Brogaard, and J. Engelberg

Abstract—Using detailed publication and citation data for over 50,000 articles from 30 major economics and finance journals, we investigate whether network proximity to an editor influences research productivity. During an editor's tenure, his current university colleagues publish about 100% more papers in the editor's journal, compared to years when he was not editor. In contrast to editorial nepotism, such "inside" articles have significantly higher ex-post citation counts, even when same-journal and self-cites are excluded. Our results thus suggest that despite potential conflicts of interest faced by editors, personal associations are used to improve selection decisions.

  • August 2013
  • Marketing Science

Complementary Goods: Creating, Capturing, and Competing for Value

By: Yalcin, Taylan, Elie Ofek, Oded Koenigsberg, and Eyal Biyalogorsky

Abstract—This paper studies the strategic interaction between firms producing strictly complementary products. With strict complements, a consumer derives positive utility only when both products are used together. We show that value-capture and value-creation problems arise when such products are developed and sold by separate firms. Although the firms tend to price higher for given quality levels, their provision of quality is so low that, in equilibrium, prices are set well below what an integrated monopolist would choose. When one firm can mandate a royalty fee from the complementor producer, we find that the value-capture problem is mitigated to some extent and consumer surplus rises. However, because royalty fees greatly reduce the incentives of the firm paying them to invest in quality, the arrangement exacerbates the value-creation problem and leads to even lower total quality. Surprisingly, this result can reverse with competition. Notably, introducing a competitor opens the door for the possibility of a Pareto-improving outcome in which all firms and consumers are better off.

 

Working Papers

Abstract—We argue that a design commons can be an advantageous organizational form under two salient conditions: 1) high "subtractability" because different claimants have mutually exclusive beliefs or preferences with respect to the design form and 2) low "excludability" in the sense that the designed artifact must be shared. Our paper is based on an empirical study of a commons organization created to design new school buildings. We argue that the design commons organization induced teachers to volunteer their knowledge and preferences, which otherwise would have been difficult to elicit. Although governance was a struggle, none of the cases in our sample suffered a "tragedy of the commons" in terms of budget overruns, bogged-down processes, or free riding. Using the principles of Ostrom's commons theory, we show that the design commons organization was robust, although it displayed some areas of fragility. We conclude with the rudiments of a contingency theory describing when and why a commons organization can be advantageous for design production. We also discuss design flexibility as an intervening variable that is critical in intermediating conflicts that commons organizations cannot resolve.

Download working paper: http://ssrn.com/abstract=2321691

NBC and the 2012 London Olympics: Unexpected Success

By: Greyser, Stephen A., and Vadim Kogan

Abstract—"The 2010 Vancouver Winter Games lost $223 million, astonishing for a 17-day event. Next year's London Summer Games, which cost a record Olympic rights fee of $1.18 billion, are expected to lose at least as much..." wrote Richard Sandomir in The New York Times. "NBC Could Lose $100 Million On London Olympics; Ratings Not Expected To Beat Beijing," chimed in John Clarke with Forbes. Sandomir and Clarke were not alone in their damning prediction. Analysts and media put forth similar commentary following NBC's embarrassing loss in Vancouver. The media had prepared a grave for NBC as the 2012 London Olympics approached. Indeed, critics created #NBCFail to characterize their expectations. Yet, as the Games wound down, it was NBC that was smiling. Their forecast had paid off. They found that not only were the Games profitable that year, they had achieved record viewership. How could they have gone from one extreme of failure to another extreme of success so quickly? The network began analyzing factors that helped-as well as decisions that had received much criticism-so that it could begin its planning of the 2014 Winter Olympics in Sochi, Russia, and 2016 Summer Olympics in Rio de Janeiro, Brazil.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=45613

Abstract—This working paper reports on a major Harvard Business School project designed to enhance MBA and practicing executives in case learning. The work is built on the foundation of HBS field cases employing the monomyth "hero's journey" classic story structure along with the creation of associated fictional case characters designed to engage readers in the dimensions of human behavior, decision making, and judgments in carrying out the work of the modern corporation. A most fortuitous event in starting the project was the engagement of our research assistant who has a theater academic background and experience as a scriptwriter and director at a repertory theater. Shannon O'Connell noted that our collection of field cases on learning to become a successful functional manager had the potential to be organized into an executive's "hero's journey." This set off a process: (1) completing our field cases to encompass the issue domain of an IT functional manager; (2) recrafting the cases from multiple industries to include one industry; (3) integrating the key characters of monomyth hero's journey; and (4) writing the case dialogue for the protagonist, Jim Barton, hero's journey. The result was our novel-based Harvard Business Press book: Adventures of an IT Leader (2009). In our Adventures book, we experimented with mechanisms to facilitate active learning such as Jim Barton's "living whiteboard," whereby Barton kept a running list of ideas associated with a set of evolving principles of IT management. Another mechanism we used to facilitate reader/student introspection was end-of-chapter/cases Reflections. Also, we experimented with audio versions of book chapters in the classroom. We went on to continue Jim Barton's hero's journey in a second Harvard Business Press book using the same novel format but a different industry and executive context: Harder Than I Thought: Adventures of a Twenty-First Century Leader (2013). The book focuses on CEO leadership in the global economy and the fast-changing IT-enabled pace of business. We extended the mechanism of Barton's living whiteboard to interludes in the book of simulations and avatars to explore CEO decision making.

Download working paper: http://ssrn.com/abstract=2326452

Abstract—We investigate whether government green procurement policies stimulate private-sector demand for similar products and the supply of complementary inputs. Specifically, we measure the impact of municipal policies requiring governments to construct green buildings on private-sector adoption of the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) standard. Using matching methods, panel data, and instrumental variables, we find that government procurement rules produce spillover effects that stimulate both private-sector adoption of the LEED standard and supplier investments in green building expertise. Our findings suggest that government procurement policies can accelerate the diffusion of new environmental standards that require coordinated complementary investments by various types of private adopters.

Download working paper: http://ssrn.com/abstract=2142085

 

Cases & Course Materials

  • Harvard Business School Case 612-033

Pret A Manger

Pret A Manger, a London-based chain of sandwich shops, was known for its fast, genuine service and pre-packaged sandwiches prepared on-site daily. Instructed by its board to grow at 15% per year, Pret considered opening "twin" shops in locations too small to contain kitchens; these shops would receive sandwich deliveries throughout the day from a nearby "parent" shop. Would Pret's employees and customers accept twin shops or view them as counter to the Pret culture? Through this decision point, the case frames a discussion about how companies build service models to reliably deliver customer service excellence. The case also helps students understand the role of employee management systems in creating consistent service experiences and introduces a set of innovative employee management practices.

Purchase this case:
http://hbr.org/search/612033-PDF-ENG

Learning Resources is a family owned educational toy company that, by late 2011, was facing a myriad of challenges, including increased competition, entry into new markets, new distribution methods, rising costs of production in China, and changing customer behavior. The company lacked a clear strategy and suffered from organizational misalignment. Rick Woldenberg, the former CEO of Learning Resources, is called back to the helm after a four-year absence to address these issues, increase performance, and set a direction for the company, all while remaining true to the values of his family's business.

Purchase this case:
http://hbr.org/search/413086-PDF-ENG

  • Harvard Business School Case 313-016

Shanghai Pharmaceuticals

Shanghai Pharmaceuticals (SPH), a vertically integrated Chinese pharmaceutical conglomerate, was considering its strategic options in the context of a rapidly evolving industry, policy, and economic environment. The company-essentially a collection of subsidiaries operating under a unified management structure-was formed through the 2009 merger of several state-owned enterprises, part of a broad policy effort in China to streamline state assets, consolidate the fragmented pharmaceutical sector, and enhance the global competitiveness of domestic firms. As it competed with other large domestic firms to become one of the few national champions that the government hoped to create, SPH was also considering an acquisition in the U.S. or Europe. This case allows students to consider the broad trends sweeping China's pharmaceutical industry and health care sector and assess future opportunities there for domestic and foreign businesses.

Purchase this case:
http://hbr.org/search/313016-PDF-ENG

  • Harvard Business School Case 614-004

Exploration vs. Exploitation

This module note introduces James March's concept of exploration and exploitation, and the management challenge of balancing the allocation of resources to the two activities in the firm. The note also touches on the O'Reilly and Tushman paper on the ambidextrous organization and mentions some of the other literature.

Purchase this case:
http://hbr.org/search/614004-PDF-ENG

  • Harvard Business School Case 114-008

Diamond Foods, Inc. (B)

Supplements 113-055.

Purchase this case:
http://hbr.org/search/114008-PDF-ENG