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.

January 29, 2013

Magazine Of The Future

When Steve Jobs called Popular Science+ the "king of the hill" of iPad magazines, he gave instant cache to the product's publisher, Stockholm-based Bonnier, and its R&D leader, Sara Ӧhrvall. A new case looks at what comes next, as Ӧhrvall considers a new publishing model, pricing strategy, ties with social media, and other decisions that come with creating a magazine of the future and other media products. Read "Bonnier: Digitalizing the Media Business," by Lynda Applegate, Daniel Nylén, Jonny Holmström, and Kalle Lyytinen.

Getting To Know You: Improving Telemedicine

More than half of hospitals outsource at least some medical imaging analysis to experts via teleradiology services. In recent research, Jonathan Clark, Robert Huckman, and Bradley Staats explore what providers of these services, in this case radiologists, learn in the process of evaluating hundreds, maybe thousands, of X-rays, CT scans, and MRIs. The results show the performance increases that can occur when radiologists learn more about the customer—the hospital—over time. Look for "Learning from Customers: Individual and Organizational Effects in Outsourced Radiological Services," in the December volume of Organization Science.

How Work Affects Self-identity

Our work world and home world are ever more coming into collision, according to the authors of "Shattering the Myth of Separate Worlds: Negotiating Non-Work Identities at Work," to be published in the Academy of Management Review. According to Lakshmi Ramarajan and Erin M. Reid, "Fundamental changes in the social organization of work are destabilizing the relationship between work and the self. As a result, parts of the self traditionally considered outside the domain of work, i.e., 'non-work' identities, are increasingly affected by organizations and occupations."

— Sean Silverthorne


Foreign Direct Investment and Growth: On the Role of Complementarities, the Search for Mechanisms, and the Potential for Linkages


This paper examines the evolution of the literature on the relationship between foreign direct investment (FDI) and growth in host countries, particularly developing countries. It provides a broad overview, with a focus on two elements that have recently become particularly important, (1) the role of complementary local conditions conducive to reaping the benefits of FDI (which relate to when FDI will generate growth) and (2) the mechanisms by which FDI creates positive externalities (which relate to how FDI generates growth).

Technology and Innovation Management


The goal of this annotated bibliography on technology and innovation is to organize and present the most important literature relevant to a scholar seeking to understand and advance the field. It includes articles that are highly cited and foundational pieces, as well as recent articles that help give the reader a sense of where the field is headed and where likely opportunities for future research lie. This article seeks to strike an equilibrium among the variety of perspectives that exist in technology and innovation literature, balancing new and old research as well as economic, organizational, and cross-disciplinary methodologies. The innovative process is broadly considered here, as well as the technologies that result from it, including business model innovation, service-level innovation, and product innovation, highlighting articles that utilize diverse levels of analysis.


Learning from Customers: Individual and Organizational Effects in Outsourced Radiological Services


The ongoing fragmentation of work has resulted in a narrowing of tasks into smaller pieces that can be sent outside the organization and, in many instances, around the world. This trend is shifting the boundaries of organizations and leading to increased outsourcing. Though the consolidation of volume may lead to productivity improvement, little is known about how this shift toward outsourcing influences learning by providers of outsourced services. When producing output, the content of the knowledge gained can vary from one unit to the next. One dimension along which output can vary-a dimension with particular relevance in outsourcing-is the end customer for whom it is produced. The performance benefits of such customer experience remain largely unexamined. We explore this dimension of volume-based learning in a setting where doctors at an outsourcing firm complete radiological reads for hospital customers. We examine more than 2.7 million cases read by 97 radiologists for 1,431 customers and find evidence supporting the benefits of customer-specific experience accumulated by individual radiologists. Additionally, we find that variety in an individual's customer experience may increase the rate of individual learning from customer-specific experience for a focal task. Finally, we find that the level of experience with a customer for the entire outsourcing firm also yields learning and that the degree of customer depth moderates the impact of customer-specific experience at the individual level. We discuss the implications of our results for the study of learning as well as for providers and consumers of outsourced services.

Preference Heterogeneity and Optimal Capital Income Taxation


We examine a prominent justification for capital income taxation: goods preferred by those with high ability ought to be taxed. In an environment where commodity taxes are allowed to be nonlinear functions of income and consumption, we derive an analytical expression that reveals the forces determining optimal commodity taxation. We then calibrate the model to evidence on the relationship between skills and preferences and extensively examine the quantitative case for taxes on future consumption (saving). In our baseline case of a unit intertemporal elasticity, optimal capital income tax rates are 2% on average and 4.5% on high earners. We find that the intertemporal elasticity of substitution has a substantial effect on optimal capital taxation. If the intertemporal elasticity is one-third, optimal capital income tax rates rise to 15% on average and 23% on high earners; if the intertemporal elasticity is two, optimal rates fall to 0.6% on average and 1.6% on high earners. Nevertheless, in all cases that we consider, the welfare gains of using optimal capital taxes are small.

Caste and Entrepreneurship in India


It is now widely accepted that the lower castes have risen in Indian politics. Has there been a corresponding change in the economy? Using comprehensive data on enterprise ownership from the Economic Censuses of 1990, 1998, and 2005, we document substantial caste differences in entrepreneurship across India. The Scheduled Castes and Scheduled Tribes are significantly under-represented in the ownership of enterprises and the share of the workforce employed by them. These differences are widespread across all states, have decreased very modestly between 1990 and 2005, and cannot be attributed to broad differences in access to physical or human capital.

Open Innovation and Firm Boundaries: Task Decomposition, Knowledge Distribution and the Locus of Innovation


This paper contrasts traditional, organization-centered models of innovation with more recent work on open innovation. These fundamentally different and inconsistent innovation logics are associated with contrasting organizational boundaries and organizational designs. We suggest that when critical tasks can be modularized and when problem-solving knowledge is widely distributed and available, open innovation complements traditional innovation logics. We induce these ideas from the literature and with extended examples from Apple, NASA, and LEGO. We suggest that task decomposition and problem-solving knowledge distribution are not deterministic but are strategic choices. If dynamic capabilities are associated with innovation streams, and if different innovation types are rooted in contrasting innovation logics, there are important implications for firm boundaries, design, and identity.

The Consequences of Financial Innovation: A Counterfactual Research Agenda


Financial innovation has been both praised as the engine of growth of society and castigated for being the source of the weakness of the economy. In this paper, we review the literature on financial innovation and highlight the similarities and differences between financial innovation and other forms of innovation. We also propose a research agenda to systematically address the social welfare implications of financial innovation. To complement existing empirical and theoretical methods, we propose that scholars examine case studies of systemic (widely adopted) innovations, explicitly considering counterfactual histories had the innovations never been invented or adopted.


Hybrid Innovation in Meiji Japan


Japan's hybrid innovation system during the Meiji era of technological modernization provides a useful laboratory for examining the effectiveness of complementary mechanisms to patents. Patents were introduced in 1885, and by 1911, 1.2 million mostly non-pecuniary prizes were awarded at 8,503 competitions. Prizes provided a strong boost to patent outcomes, especially in less developed prefectures, and they also induced large spillovers of technical knowledge in prefectures adjacent to those with prizes, relative to distant control prefectures without prizes. Linking competition expenditures with the expected market value of patents induced by the prizes permits a cost-benefit assessment of the prize competitions to be made.


Intermediary Functions and the Market for Innovation in Meiji and Taishō Japan


Japan experienced a transformational phase of technological development during the late nineteenth and early twentieth centuries. We argue that an important, but so far neglected, factor was a developing market for innovation and a patent attorney system that was conducive to rapid technical change. We support our hypothesis using patent data, and we also present a detailed case study on Tomogorō Ono, a key developer of salt production technology who used attorneys in connection with his patenting work at a time when Japan was still in the process of formally institutionalizing its patent attorney system. In accordance with Lamoreaux and Sokoloff's influential study of trade in invention in the United States, our quantitative and qualitative evidence highlights how inventors and intermediaries in Japan interacted to create a market for new ideas.


Intermediation and Diffusion of Responsibility in Negotiation: A Case of Bounded Ethicality


This article compares direct deception with deception via an intermediary in the bargaining context. It describes a growing experimental literature that suggests how perceived ethics surrounding transactions with multiple partners can encourage misbehavior. It is noted that causing harm indirectly through another can protect harm doers. Harm doers are apparently protected from punishment as well. The hypothesis that intermediation reduces punishment runs counter to predictions coming from a model in which solely unfair actions are punished. Experiments are also presented that show a phenomenon about the attribution of responsibility and subsequent blame (and praise) in negotiation and conflict resolution settings. It is believed that by making people more aware of their failure to notice and punish indirect unethical behavior, others can create a world where the use of intermediation will no longer provide harm doers an easy escape from public awareness.

Immigration and Employer Transitions for STEM Workers


We analyze the career trajectories of STEM workers and firm-level hiring of immigrants using the Longitudinal Employer-Household Dynamics (LEHD) database of the U.S. Census Bureau. We find STEM career adjustments during periods of abnormally high immigration into the firm to be more difficult on several dimensions compared to non-STEM workers. Most notably, STEM workers do not acquire a new job as quickly as non-STEM workers; moreover, their earnings are reduced after the job transition occurs. This latter earnings effect is strongest for the first five years after the transition, abating somewhat by the tenth year.


Shattering the Myth of Separate Worlds: Negotiating Non-Work Identities at Work


How much of our self is defined by our work? Fundamental changes in the social organization of work are destabilizing the relationship between work and the self. As a result, parts of the self traditionally considered outside the domain of work, i.e., "non-work" identities, are increasingly affected by organizations and occupations. Based on an interdisciplinary review of literature on identity and work we develop a model of how people negotiate non-work identities (e.g., national, gender, family) in the context of organizational/occupational pressures and personal preferences regarding this identity. We propose that the dual forces of pressures and preferences vary from inclusion (e.g., incorporating the non-work identity within the work identity) to exclusion (e.g., keeping the identities separate). We suggest that the alignment or misalignment of these pressures and preferences shapes peoples' experience of the power relationship between themselves and their organization/occupation and affects how they manage their non-work identities. We describe how people enact different non-work identity management strategies-namely assenting to, complying with, resisting, or inverting the pressures-and delineate the consequences of these strategies for people and their organizations/occupations.

Expected Firm Altruism, Quality Provision, and Brand Extensions


A setting is considered where consumers keep track of the extent to which brands care about them, which is modeled as altruism of brands towards their target consumers. Consumers who purchase an experience good of high quality reasonably deduce that the supplier of this good is relatively altruistic towards them and are therefore more keen to purchase a brand extension that is also directed at them. As a result, the success of brand extensions depends on the overlap between the customers of its original product and the target customers of the extension product. The quality and demand for a brand extension can be higher if the brand is perceived as caring only for its most quality-conscious consumers rather than for all possible buyers of the good.

Not Just for Stereotyping Anymore: Racial Essentialism Reduces Domain-General Creativity


Individuals who believe that racial groups have fixed underlying essences use stereotypes more than do individuals who believe that racial categories are arbitrary and malleable social-political constructions. Would this essentialist mind-set also lead to less creativity? We suggest that the functional utility derived from essentialism induces a habitual closed-mindedness that transcends the social domain and hampers creativity. Across studies, using both individual difference measures (in a pilot test) and experimental manipulations (Experiments 1, 2a, and 2b), we found that an essentialist mind-set is indeed hazardous for creativity, with the relationship mediated by motivated closed-mindedness (Experiments 2a and 2b). These results held across samples of majority cultural-group members (Caucasian Americans, Israelis) and minority-group members (Asian Americans), as well as across different measures of creativity (flexibility, association, insight). Our findings have important implications for understanding the connection between racial intolerance and creativity.

IP Modularity in Software Ecosystems: How SugarCRM's IP and Business Model Shape Its Product Architecture


We provide a case study of the concept of "IP modularity," analyzing the case of SugarCRM. The modular architecture of this platform software is aligned with its intellectual property structure in such a way that the firm can derive, from the same code tree, an open source community version and a proprietary version. The software's IP modular structure also facilitates the development of complements by distributed and anonymous complementors and simplifies downstream customizations, thus enhancing the platform's attractiveness. We find that SugarCRM implements IP modularity on three different levels of the architectural hierarchy, in some cases down to the source code level. Our study thus extends the concept of IP modularity to comprise the notion of hierarchy levels.


Working Papers

Inflation Bets or Deflation Hedges? The Changing Risks of Nominal Bonds


The covariance between U.S. Treasury bond returns and stock returns has moved considerably over time. While it was slightly positive on average in the period 1953-2009, it was unusually high in the early 1980s and negative in the 2000s, particularly in the downturns of 2000-2002 and 2007-2009. This paper specifies and estimates a model in which the nominal term structure of interest rates is driven by four state variables: the real interest rate, temporary and permanent components of expected inflation, the "nominal-real covariance" of inflation, and the real interest rate with the real economy. The last of these state variables enables the model to fit the changing covariance of bond and stock returns. Log bond yields and term premia are quadratic in these state variables, with term premia determined by the nominal-real covariance. The concavity of the yield curve―the level of intermediate-term bond yields, relative to the average of short- and long-term bond yields―is a good proxy for the level of term premia. The nominal-real covariance has declined since the early 1980s, driving down term premia.

Download the paper:

How Do Risk Managers Become Influential? A Field Study of Toolmaking and Expertise in Two Financial Institutions


In this study, we examine transformations in the influence of risk managers in two large UK banks over a period of five years. Our analysis highlights that a process we term toolmaking, whereby experts adopt, adjust, and reconfigure tools that embody their expertise, is central to the way in which the risk managers in our study attempt to gather influence in their organizations. Based on our longitudinal field study, we identify two dimensions that help to explain the organizational influence of experts: their ability to (a) incorporate their expertise into highly communicable tools and (b) develop a personal involvement in the deployment and interpretation of those tools in important decision-making forums. Based on the different combinations of these two processes, we distinguish analytically among four clusters of actions and tools-those of the compliance expert, the technical champion, the trusted advisor, and the engaged toolmaker-and explain the dynamics of expert influence as risk managers adopt different practices. Our empirical findings and theoretical framework contribute to our understanding of the nature of expert influence and how risk managers may become influential.

Download the paper:


Cases & Course Materials

Russia and China: Energy Relations and International Politics

Abdelal, Rawi, and Sogomon Tarontsi
Harvard Business School Case 713-045

Russia and China are neighbors with complementary needs: Russia has an abundance of energy resources, which China needs to fuel its industry. The case analyzes the evolution of the China-Russia energy relations in the post-Cold War period, with an emphasis on the political factors, external and domestic, impeding and contributing to the full realization of the potential of energy ties between Russia and China.

Purchase this case:

Bonnier: Digitalizing the Media Business

Applegate, Lynda, Daniel Nylen, Jonny Holmstrom, and Kalle Lyytinen
Harvard Business School Case 813-073

The case follows leading Scandinavian media company Bonnier as it establishes a designated R&D division for the first time. The case, in particular, focuses on its first flagship project, called Mag+, in which it creates a digital platform for publishing digital magazines on the iPad. The case is intended, in part, as an introduction to the challenges media companies face due to the disruptive effects of digitalization, where traditional products and services are challenged by new digital category breakers such as the iPhone, Hulu, or Netflix. To this end, it offers a short tour of the changing print media landscape and reviews major upheavals in its business models. The Bonnier case illustrates how to engage in and manage a radical digital innovation process. In particular, it discusses the challenges associated with responding to the disruptive effects of digitalizing printed magazines. It illustrates concrete challenges that Bonnier R&D manager, Sara Öhrvall, needs to tackle as she starts as the first R&D manager at Bonnier.

Purchase this case:

Addleshaw Goddard LLP (Abridged)

Eccles, Robert G., Amy C. Edmondson, and James Weber
Harvard Business School Case 413-064

Addleshaw-Goddard (AG), the 15th largest law firm in the UK, is seeking ways to serve larger clients on more important legal matters. Part of this strategy involves its "Client Development Centre (CDC)," an innovative idea and set of services launched by Dr. Jim Hever who holds a Ph.D. in Strategic Leadership Development. The mission of the CDC is to improve the capabilities of clients' in-house legal departments by making them better partners with the business units and improving their leadership skills. The CDC has adopted an innovative pricing structure. Rather than charging direct fees for these consulting services, it proposed to the client that it contract with the firm for five times this amount in legal fees that might otherwise have gone to another law firm. It is in this way, AG hopes to increase its position with its larger clients. AG has also developed a very systematic program for identifying and serving its key clients, developed in collaboration with Cranfield School of Management. It is these clients that will be the focus of the efforts for the CDC. In addition, the firm has co-developed a training program with Cranfield to improve the skills of its own partners. The case explores whether these initiatives will lead to a long-term competitive advantage. The firm believes what really will produce competitive advantage is its "Me-To-You Mindset" initiative that encourages partners to look at the world through their clients' eyes. At the end of the case Hever is reflecting on a proposal he submitted for providing CDC services to one of the largest UK companies. The general counsel wants to pay for these services in cash should he decide to accept the proposal, rather than hiring AG for more legal work. Hever is wondering if this is a good way to take advantage of recent reforms allowing law firms to provide other professional services, like consulting, or if this is "off-strategy" for the mission of the CDC.

Purchase this case:


Higgins, Robert F., and Annelena Lobb
Harvard Business School Case 813-023

The management team at Predilytics, a healthcare analytics firm, must decide whether to accept a Series A venture capital financing deal. The company provided analytic services to healthcare plans, typically Medicare Advantage plans, in efforts to draw conclusions from massive amounts of patient data. The company still had enough funding from a seed round to operate on a low-key basis for a few more months, but the team hoped to move forward aggressively and scale its business. They also needed to make business choices about next steps.

Purchase this case:

The World Bank in 2012: Choosing a Leader

Iyer, Lakshmi, and Ian McKowan Cornell
Harvard Business School Case 713-013

In 2012, the World Bank faced important questions in terms of its future strategy and mission. Should the Bank continue to focus on micro-level development initiatives, such as the Millennium Development Goals (MDG), or return to traditional macro-level financial support? Was the Bank's role as a source of funds for developing countries still relevant? Should emerging market nations be given a greater role in the governance structure? Most importantly, was Jim Yong Kim, a U.S. national, the right choice to lead the bank, in preference to highly qualified candidates from developing nations?

Purchase this case:

Blackstone's Investment in Intelenet

Lerner, Josh, Sandeep Bapat, and Rachna Tahilyani
Harvard Business School Case 213-036

Three years had passed since Blackstone's investment in Intelenet Global Services, their third largest investment in India. Great progress had been made, but now a new challenge loomed. Globank, a large global bank, was Intelenet's largest customer. Intelenet's contract with Globank was set to expire in the next seven months, and all of Intelenet's assets and people working on the account would move to Globank. Amit Dixit, managing director at the Blackstone Group, estimated that in the next four years this would result in Intelenet losing $160 million of revenue and $48 million of EBITDA. Blackstone could either channel large amounts of capital and human resources towards renewing the contract or focus on growing third-party business at Intelenet. Dixit had to firm up his strategy quickly in order to begin negotiations with Globank.

Purchase this case:

The 'Chongqing Model' and the Future of China

Rithmire, Meg
Harvard Business School Case 713-028

Since opening to the global economy in 1979, but especially since entering the WTO in 2001, China's economy grew at rates around 10% annually by attracting FDI and promoting exports. After the financial crisis that began in 2008 and depressed demand in the United States and Europe, China's growth began to slow, and vulnerabilities in its economy came to light. It became clear to many in China that the growth strategy that got China from 1978 to the present was unsustainable and that the country needed a new strategy to resolve the country's regional inequalities, stimulate domestic consumption, and create growth less vulnerable to global contractions in demand. At exactly this time, between 2007 and 2012, the provincial municipality of Chongqing in China's mountainous southwest became the fastest growing city in China with GDP growth averaging over 15%. Chongqing's growth was the result of a suite of economic and social policies that had been dubbed the "Chongqing Model," a controversial bundle of reforms that promised public and private sector growth with benefits more equitably shared by all citizens. Yet critics found the model politically suspect and over reliant on state-owned enterprises and debt-driven investment. When the city's preeminent leader was publicly fired following a sensational murder scandal, the region's new leaders-and indeed China's new leaders-had to weigh in on the "Chongqing Model." Would it signal a new path to prosperity for post-WTO China?

Purchase this case:

Lin TV Corp

Scharfstein, David, Erik Stafford, and Joel L. Heilprin
Harvard Business School Case 213-065

This case considers the valuation of Lin TV, a publicly traded company with 30 TV stations. The case highlights how a change in operating strategy can enhance the firm's value and considers the effect of consolidation within the industry on firm value.

Purchase this case:

Sirtris Pharmaceuticals: Living Healthier, Longer (Abridged)

Stuart, Toby, and James Weber
Harvard Business School Case 813-029

Describes a set of key strategic decisions facing the scientific founder and CEO of a promising, early stage bio-pharmaceuticals company. Should the company establish a proposed alliance with a pharmaceutical firm? Should it create a nutraceuticals business in parallel to its effort to develop anti-aging therapeutics? And, should it in-license a second drug development candidate?

Purchase this case: