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.

April 15, 2008

How long does it take the average country to adopt a typical technology? The surprising answer: nearly half a century, or 47 years. "There is, however, substantial variation in these lags, both across countries and across technologies," write HBS professor Diego A. Comin and colleague Bart Hobijn of the Federal Reserve Bank of New York. Their working paper available for download, "An Exploration of Technology Diffusion," looks at the whys and wherefores of these adoption lags—the time between invention and diffusion—for 15 technologies in 166 countries. Technologies that Comin and Hobijn studied were related to transportation, telecommunication, IT, health care, steel production, and electricity. This week also sees new cases and course materials on, for example, China's political and economic scene as the Beijing 2008 Olympic Games approach, and on a bicycle manufacturer attempting to retool the mixed reputation of folding two-wheelers.
— Martha Lagace

Working Papers

Organizational Design and Control across Multiple Markets: The Case of Franchising in the Convenience Store Industry


Many companies operate units which are dispersed across different types of markets and thus serve significantly diverging customer bases. Such market-type dispersion is likely to compromise the headquarters' ability to control its local managers' behavior and satisfy the divergent needs of different types of customers. In this paper we find evidence that market-type dispersion is an important determinant of delegation and the provision of incentives. Using a sample of convenience store chains, we show that market-type dispersion is related to the degree of franchising at the chain level as well as the probability of franchising a given store within a chain. Our results are robust to alternative definitions of market-type dispersion and to other determinants of franchising such as the stores' geographic distance from headquarters and geographic dispersion. Additional analyses also suggest that chains that do not franchise at all may cope with market-type dispersion by decentralizing operations from headquarters to their stores, and, to a weaker extent, by providing higher variable pay to their store managers.

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An Exploration of Technology Diffusion


We develop a model that, at the aggregate level, is similar to the one sector neoclassical growth model, while, at the disaggregate level, has implications for the path of observable measures of technology adoption. We estimate our model using data on the diffusion of 15 technologies in 166 countries over the last two centuries. We evaluate the implications of our estimates for aggregate TFP and per capita income. Our results reveal that, on average, countries have adopted technologies 47 years after their invention. There is substantial variation across technologies and countries. Over the past two centuries, newer technologies have been adopted faster than old ones. The cross-country variation in the adoption of technologies accounts for at least a quarter of per capita income differences.

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Bank Accounting Standards in Mexico. A Layman's Guide to Changes 10 Years after the 1995 Bank Crisis


After the 1995 crisis, the Mexican banking system experienced significant changes in bank accounting standards. Most of these changes took place between 1996 and 2001, and had a significant impact in the structure and interpretation of financial information of banks. This document explains the major changes on bank accounting, their purpose and structure, and discusses their impact on financial information reported by Mexican banks. It also provides the English equivalent of the major accounting terms used by Mexican banks. The main purpose of this document is to provide a standardized guide to better understand financial information produced before and after the crisis, within the current context of internationalization of Mexican banks' ownership.

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Cases & Course Materials

China Rising: An Economic Snapshot

Harvard Business School Note 308-064

"Rising China: An Economic Snapshot" provides readers with an overview of China's economic transformation, relying on economic data from a variety of sources. It is organized into three sections: (1) "The Big Picture" explores macroeconomic indicators, as well as those associated with the opportunities and constraints of the business environment; (2) "Regional Variation" makes a strong case for situating any analysis of China's economy in context; and finally (3) "China and the Global Economy" shows how China's engagement with the global economy has changed overtime. These materials should be of interest to observers and participants of Chinese business, and as a means to consider the bigger picture shaping the environment in which they must operate. In addition, they may be used as a basis for class discussion and lecture, or as a complement to cases focused on companies doing business in China.

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China: The Political System

Harvard Business School Note 308-063

Offers a detailed overview of the structure and operation of the Chinese political system today. Key issues that are discussed include (1) the relationship between the Communist Party of China and the state; (2) the relationship between central and local levels of government; (3) the Chinese electoral system; and (4) current pressures for change. Also includes a number of useful exhibits on Communist Party membership, political structure, and the administrative system. Can be assigned alone as an introductory piece to a course on the Chinese business environment or used along with any individual case.

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Corrections Corp. of America

Harvard Business School Case 107-071

This case illustrates a comprehensive valuation of a publicly traded firm specializing in building and managing prisons. Students must assess the firm's strategy and risks, evaluate key financial reports, derive forecasts of future performance, and use these forecasts to value the firm.

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Montague Corporation: Unfolding the Future in Cycling

Harvard Business School Case 808-087

Montague has developed a major innovation that creates a new sub-category in the bicycle industry: a full-sized, high-quality bicycle that folds. In contrast to existing small-wheeled folding bicycles that are portable, but with inferior performance characteristics, the Montague folding bicycle has the look, feel, and performance of a standard bicycle. However, while the firm has experienced notable success since its founding, it has yet to achieve widespread adoption of its innovation. What should the firm do to increase penetration? How can Montague overcome the reputation of folding bicycles as inferior performers and convince consumers, dealers, and others of its bicycle's quality? How can the firm get consumers to even notice the innovation when the bicycle looks just like a regular bicycle? In other words, how can Montague balance the need to look like a regular bicycle in order to achieve legitimacy with the need to signal value by looking different? What market segment should Montague be targeting-customers looking specifically for a folding bicycle, or consumers interested in a full-sized bicycle but for whom the folding feature might add value? Finally, should Montague license its technology to one of the leading mainstream bicycle manufacturers in order to increase adoption vs. continuing to go it alone in the product market?

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Two Brattle Center: A Mental-Health Clinic in Search of a Viable Operating Model

Harvard Business School Case 408-103

Two Brattle Center (TBC) is a struggling for-profit private mental health clinic based in Harvard Square. Its founder, Dr. Joan Wheelis, is a nationally recognized practicing psychiatrist who has developed outpatient treatment programs based on Dialectical Behavior Therapy (DBT) for patients with borderline personality disorder (BPD). These patients, typically adolescent girls and young women, struggle with emotional crises and are prone to destructive behaviors such as cutting, excessive use of alcohol, taking drugs and suicide attempts. These patients are very difficult to treat and TBC has developed programs that make a noticeable difference to these patients. DBT requires teams of people with different types of expertise and so the original operating model developed by Dr. Wheelis was one in which TBC was staffed by a large number of part-time clinicians, the "affiliate model." However, changes in the health care environment, particularly the advent of managed care, have put very real pressures on this model and the company is now in a state of crisis. Dr. Wheelis is trying to decide whether and how to keep it going. The key decision is whether to shift to a "staffing model" based on a larger number of full-time clinicians. This will require a larger patient population to make the economics of greater fixed capacity viable. Another constraint is the poor state of its basic financial systems. Morale is low and thus staff turnover is high, with many clinicians taking patients with them into their private practice when they go. TBC is trying to decide whether to join the Blue Cross Blue Shield network, which would increase its patient population but at rates much lower than it currently charges by only taking private patients. Dr. Wheelis is also pondering whether to start a non-profit foundation as a way of getting money to support its teaching and training programs, or even making the company a non-profit itself.

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Southeast Asia and the Political Economy of Development


This chapter assesses the contribution of contemporary qualitative research on Southeast Asia to the field of political economy. Specifically, we examine Southeast Asia research on the origins of economic institutions and their influence on economic performance. We show how similar institutions vary in their impact and are influenced by local contexts. After providing a critical review of Southeast Asia-related research on the political economy of development, the chapter identifies how social and political institutions shaped the region's market-based economies, the origins of these institutional arrangements, and the origins and impact of institutions from the less-studied post-socialist economies, especially Vietnam. Publisher's Link

Testing Limits to Policy Reversal: Evidence from Indian Privatizations


We examine the effect of regime change on privatization using the 2004 election surprise in India. The pro-reform BJP was unexpectedly defeated by a less reformist coalition. Stock prices of government-controlled companies that had been slated for definite privatization by the BJP dropped by 3.5 percent relative to private firms. Surprisingly, government-controlled companies that were only under study for possible privatization fell by 7.5 percent relative to private firms. We interpret this as evidence of investor belief of policy irreversibility, where reforms may reach a stage beyond which future regimes have difficulty reversing those policies. Further analysis suggests that layoffs, combined with the privatization announcement, served as a credible commitment to the government's privatization agenda.

Current State of Fellowship Hiring: Is a Universal Match Necessary? Is it Possible?


Currently, approximately ninety percent of the six hundred twenty graduating orthopaedic residents are planning on entering a post-graduate fellowship. Since January of 2005, two of the largest fellowship match programs, Sports Medicine and Spine Surgery, were dissolved by the NRMP due to the gradual decline in participation, leaving approximately seventy percent of applicants in a non-match, decentralized system. This leaves Hand Surgery, Shoulder and Elbow, and Foot and Ankle as the only three orthopaedic subspecialties still in some match program. This has created an extremely complicated hiring environment for all residents. This paper focuses on the current state of fellowship employment and hiring in orthopaedic surgery, on the likely effects of reinstituting a match, and on how this might be accomplished. For this purpose, we present the results of surveys we conducted of fellowship directors and residents, discuss how the present market for orthopaedic surgery fellows resembles the market for medical residents prior to the introduction of the NRMP, and discuss how another fellowship market has successfully reinstituted a match after experiencing a comparable failure.

Response to Farjoun's 'Strategy Making, Novelty, and Analogical Reasoning'—Commentary on Gavetti, Levinthal, and Rivkin (2005)


In his thoughtful commentary on our 2005 paper (Gavetti, Levinthal, and Rivkin, 2005), Farjoun offers three critiques and extensions. First, he suggests our approach should have explicitly considered a constructionist logic. Second, Farjoun argues that we have neglected the full array of modes of cognition between rational choice and feedback-based adaptive learning and have therefore overstated the role of our focal mode, reasoning by analogy. Third, he highlights some of the contingencies under which the various modes of cognition he identi?es are effective. In response, we address each point. We ?rst argue that a constructionist perspective is not alien either to the role of analogical reasoning or to the particular modeling apparatus we have developed. We then suggest that despite the richness of modes of cognition that lie between rational choice and adaptive learning, theorizing about them requires simpli?cation and the identi?cation of underlying categories that classify such modes, which is the approach our paper employs. Finally, we clarify how our paper adopts the contingent logic advocated by Farjoun.

Synchronicity and Firm Interlocks in an Emerging Market


Stock price synchronicity has been attributed to poor corporate governance and a lack of firm-level transparency. This paper investigates the association between different kinds of firm interlocks, control groups, and synchronicity in Chile. A unique data set containing equity cross holdings, common individual owners, and director interlocks is used to map out firm ties and control groups in the economy. While there is a correlation between synchronicity and shared ownership and equity ties, synchronicity is more strongly correlated with inter-locking directorates. The presence of shared directors is associated with either reduced firm-level transparency or increased correlation in firm fundamentals, for example, due to joint resource allocation within the group. In this way, the results are consistent with models where firm interlocks facilitate coordination across firms and are also consistent with models where relationships affect capital allocation.

Front-line Staff Perspectives on Opportunities for Improving the Safety and Efficiency of Hospital Work Systems


To link safety-related concerns raised by frontline staff about hospital work systems (operational failures) to the safety and efficiency of hospitals and to contrast these concerns with national patient safety initiatives. Data Sources: Primary data include semi-structured interviews with frontline staff and 1,732 staff-identified operational failures at 20 U.S. hospitals from 2004-2006. Study Design. Senior level managers observed frontline staff work with particular attention to patient safety issues and facilitated open discussion meetings with employees about their safety-related concerns. Data Collection: Hospitals submitted data on the operational failures they identified through their interactions with frontline workers. Data were analyzed for type of failure and frequency of occurrence. Interviews were conducted with frontline staff. Principal Findings. The two most frequent categories of operational failures, equipment/supplies and facility issues, posed safety risks and diminished staff efficiency, but have not been priorities in national initiatives. Conclusions: Our study suggests an underutilized strategy for improving patient safety and staff efficiency: leveraging frontline staff experiences with work systems to identify and remove operational failures. In contrast to the perceived tradeoff between safety and efficiency, fixing operational failures can yield benefits for both. Thus, prioritizing improvement of work systems in general, rather than focusing more narrowly on specific clinical conditions, can increase safety and efficiency of hospitals.