Strategy: General Strategy

76 Results

 

Institutional Strategies in Emerging Markets

In an increasingly complex and integrated global economy, a significant challenge for organizations is navigating institutionally diverse contexts—each posing a different set of opportunities and challenges. To help provide guidance, this paper brings together diverse streams of research under the conceptual umbrella of "institutional strategies." Institutional strategy means the comprehensive set of plans and actions directed at leveraging and shaping the sociopolitical and cultural institutions within an organization's external environment. This article maps the field of research on institutional strategies, and highlights potential avenues for future research. As the review shows, there has been a biased selection and focus in current research—namely, a disproportionate emphasis on developed markets. This raises some concern regarding the applicability of current models and theoretical toolkits in the context of emerging markets. To address this concern, the authors offer up a comprehensive framework of institutional strategies that not only provides a more realistic account of the diverse institutional conditions that organizations confront, but also highlights the importance of expanding the current focus from developed markets to a more global perspective. Read More

Leveraging Market Power Through Tying and Bundling: Does Google Behave Anti-Competitively?

This paper presents a series of incidents in which Google used tying and bundling to expand its dominance in a number of online markets and into additional markets. The author assesses whether these incidents raise concerns under antitrust law, and concludes that they do. Based on case law of technology companies that have engaged in tying and/or bundling and subsequently been subject to antitrust scrutiny, most notably Microsoft, it appears that Google's tying and bundling practices could face strong criticism for foreclosing competition. Such scrutiny is particularly important in light of Google's dominance in a number of online markets. The author also examines both current ties as well as ties Google used historically. The author concludes that Google's use of tying portends a future of reduced choice, slower innovation, lower quality, and higher prices. Read More

Book Excerpt: ‘Can China Lead?’

Creativity and innovation can be nurtured in different educational and institutional settings, but does China have a good institutional framework for innovation? An excerpt from Can China Lead? Open for comment; 0 Comments posted.

Management Practices, Relational Contracts, and the Decline of General Motors

What led to General Motors' decline? Long regarded as one of the best managed and most successful firms in the world, its share of the US market fell from 62.6 to 19.8 percent between 1980 and 2009, and in 2009 the firm went bankrupt. The authors argue that the conventional explanations for GM's decline are seriously incomplete. They discuss a number of causes for the firm's difficulties, and make the case that one of the reasons that GM began to struggle was because rival Toyota's practices were rooted in the widespread deployment of effective relational contracts--agreements based on subjective measures of performance that could neither be fully specified beforehand nor verified after the fact and that were thus enforced by the shadow of the future. GM's history, organizational structure, and managerial practices made it very difficult to maintain these kinds of agreements either within the firm or between the firm and its suppliers. The authors also argue that at least two aspects of GM's experience seem common to a wide range of firms. First, past success often led to extended periods of denial: Indeed a pattern of denial following extended success appears to be a worldwide phenomenon. Second, many large American manufacturers had difficulty adopting the bundle of practices pioneered by firms like Toyota. The paper concludes by discussing the implications of this history for efforts to revive American manufacturing. Read More

D’O: Making a Michelin-Starred Restaurant Affordable

Under the leadership of Chef Davide Oldani, the Italian restaurant D'O balances Michelin-star-level quality with affordable prices. In the following story and video, Professor Gary Pisano explains how Oldani does it. Open for comment; 10 Comments posted.

Blockbuster! Why Star Power Works

Anita Elberse discusses her new book on the benefits of a blockbuster strategy—investing big money into a few top products. Closed for comment; 5 Comments posted.

Do Mergers Hurt Product Quality?

Albert W. Sheen finds that while mergers lead to product price decreases, they generally have little effect on product quality over time. Closed for comment; 2 Comments posted.

Waves in Ship Prices and Investment

Dry bulk shipping is a highly volatile and cyclical industry in which earnings, investment, and returns on capital appear in waves. In this paper, the authors develop a model of industry capacity dynamics in which industry participants have trouble forecasting demand accurately and fail to fully anticipate the effect that endogenous supply responses will have on earnings. The authors estimate the model using data on earnings, secondhand prices, and investment in the dry bulk shipping industry between 1976 and 2011. Findings show that returns to owning and operating a ship are predictable and closely related to industry-wide investment in capacity. High current ship earnings are associated with higher ship prices and higher industry investment, but predict low future returns on capital. Conversely, high levels of ship demolitions-a measure of industry disinvestment-forecast high returns. Read More

What Went Wrong at J.C. Penney?

J.C. Penney CEO Ron Johnson went bold in his attempted rescue of the fading retailer, but his top-to-bottom makeover failed. Marketing expert Rajiv Lal explores what went wrong and why JCP has an even more difficult road ahead. Closed for comment; 27 Comments posted.

Can LEGO Snap Together a Future in Asia?

Using scenario planning, executives at LEGO Group played through a possible strategy shift in Asia. Thanks to a new case study by professor Anette Mikes, students can make their own decisions. Closed for comment; 5 Comments posted.

Diagnosing the ‘Flutie Effect’ on College Marketing

Boston College, after one of the most dramatic plays in collegiate football history, benefitted with a dramatic upswing in applications. Other colleges have experienced similar upswings from sports success. In a new study, Doug J. Chung demonstrates the reality behind the "Flutie Effect," named after BC quarterback Doug Flutie. Closed for comment; 8 Comments posted.

10 Reasons Customers Might Resist Windows 8

Has Microsoft become too innovative? Professor Rosabeth Moss Kanter, a leader in the field of change management, discusses reasons that people might not rush to embrace Windows 8. Closed for comment; 27 Comments posted.

Why Public Companies Underinvest in the Future

Private companies are much more focused on the long term when making deals than their publicly owned counterparts. Which side has the right idea? New research from Assistant Professor Joan Farre-Mensa and colleagues. Open for comment; 3 Comments posted.

Why Public Companies Underinvest in the Future

Private companies are much more focused on the long term when making deals than their publicly owned counterparts. Which side has the right idea? New research from Assistant Professor Joan Farre-Mensa and colleagues. Open for comment; 3 Comments posted.

Investment Incentives in Proprietary and Open-Source Two-Sided Platforms

While proprietary and open-source software have coexisted since the early days of the computing industry, competition between these two modes of development has intensified dramatically following the surge of the Internet in the mid-1990s. This paper provides a first step to better understand incentives to invest in proprietary and open platforms. Specifically, the authors examine a model of a proprietary and an open-source two-sided platform to study equilibrium investment in platform quality. Their analysis provides answers to three important questions: (1) How are the incentives to invest in platform quality affected by the degree of platform openness? (2) Which of these two modes of governance leads to investment closer to the social optimum? And (3), how are incentives to invest in platform quality moderated by competition between proprietary and open two-sided platforms? Comparing monopoly platforms reveals that for a given level of user and developer adoption, investment incentives are stronger in proprietary platforms. However, open platforms may receive larger investment because they may benefit from wider adoption, which raises the returns to quality investment. The authors also find that proprietary platforms may benefit from higher investment in competing open platforms when developers multi-home, a result that helps explain why a proprietary platform such as Microsoft has chosen to contribute to the development of Linux. Read More

Are You a Strategist?

Corporate strategy has become the bailiwick of consultants and business analysts, so much so that it is no longer a top-of-mind responsibility for many senior executives. Professor Cynthia A. Montgomery says it's time for CEOs to again become strategists. Closed for comment; 43 Comments posted.

The High Risks of Short-Term Management

A new study looks at the risks for companies and investors who are attracted to short-term results. Research by Harvard Business School's Francois Brochet, Maria Loumioti, and George Serafeim. Closed for comment; 4 Comments posted.

Expectations, Network Effects and Platform Pricing

In markets with network effects, the value that users gain from platforms depends on the number of other users of the same type who join the same platform (direct network effects) or the number of users of a different type that join (cross-group network effects). Examples include social networks like Facebook or Google+, payment systems like PayPal or Visa, videogame systems like PlayStation 3 and Xbox 360, smartphone platforms like Apple's iPhone or Google's Android, etc. Users typically rely on the media, market reports, or word of mouth to form expectations about the total number of other users that join a given platform. However, most of the time these users are unable to calculate the effect of platforms' prices on adoption by other users. In other words, they do not take price into account when forming expectations. To analyze platform profits, Andrei Hagiu and Hanna Hałaburda model different degrees of user sophistication in forming price expectations in markets with network effects. They show that firms have different preferences regarding the average sophistication of their user base depending on market structure. Read More

The Impact of Modularity on Intellectual Property and Value Appropriation

Distributed innovation in open systems is an important trend in the modern global economy. In general, distributed innovation in open systems is made possible by the modularity of the underlying product or process. Carliss Y. Baldwin and Joachim Henkel provide a systematic analysis of value appropriation in closed and open modular systems, with implications for managers. Modular systems are made up of components that are highly interdependent within sub-blocks, called modules, and largely independent across those sub-blocks. Despite the technical benefits of modularity, history shows that it is not always straightforward for firms to capture value in a modular system. The paper argues that strategies for capturing value in an open, modular system must be formulated at the module level. But modularity is not a single strategy: it is rather a large set of strategic options and related tactics that can be deployed in different ways depending on the interplay of countervailing forces. Read More

Location, Location, Location: The Strategy of Place

Business success in one geographic location doesn't necessarily follow a company to a new setting. Professor Juan Alcácer discusses the importance of taking a long-term strategic view. Open for comment; 12 Comments posted.

The Most Common Strategy Mistakes

In a new book, Understanding Michael Porter: The Essential Guide to Competition and Strategy, Joan Magretta distills Porter's core concepts and frameworks into a concise guide for business practitioners. In this excerpt, Porter discusses common strategy mistakes. Closed for comment; 36 Comments posted.

Multi-Sided Platforms

Research in multi-sided platforms (MSPs) studies how payment networks bring together cardholders and retailers, shopping malls bring together shoppers and retailers, and video game systems bring together gamers and game developers. Andrei Hagiu and Julian Wright propose a new definition of MSPs that aims to capture what makes eBay, shopping malls, Yellow Pages directories, and dating websites different from "regular" firms such as a bakery or car dealership, as well as how to characterize less clear-cut examples. They also discuss the economic trade-offs that determine where organizations choose to place themselves on the continuum between MSPs and resellers, or between MSPs and input suppliers. Read More

Doomsday Coming for Catastrophic Risk Insurers?

Insurance "reinsurers" underwrite much of the catastrophic risk insurance taken out to protect against huge disasters natural and man-made. Problem is, says Professor Kenneth A. Froot, reinsurers themselves are in danger of failing from a major catastrophic event. Open for comment; 5 Comments posted.

Quantity vs. Quality: Exclusion by Platforms with Network Effects

Many well-known platforms regulate access and transactions even though excluded users would be willing to pay the "price of admission." For example, Apple routinely excludes certain application developers from its highly popular iPhone store, and videogame console manufacturers such as Microsoft, Sony, and Nintendo restrict access to a select set of game developers. Exclusion is oftentimes a necessary strategic instrument, which allows platforms to trade off the quantity versus the "quality" of users. Andrei Hagiu's paper builds a simple strategic model that formalizes the choices of possible exclusion policies and discusses the potential gains and losses of exclusion. Read More

First-Party Content, Commitment and Coordination in Two-Sided Markets

Two-sided platforms face a challenging coordination problem that consists of attracting both buyers and sellers. Participation by both depends on their expectations of participation on the other side of the market. To improve such coordination, many platforms provide "first-party content," such as games (e.g. Microsoft's Halo on Xbox), objective search results (Google and Bing) or, in the case of Amazon and eBay, product information and payment systems. First-party content makes participation more attractive to one side (typically, users), independently of the presence of sellers. Importantly, first-party content may be either a complement or a substitute for third-party sellers' products. For instance, Halo is a substitute for games provided by Electronic Arts on the Xbox; on the other hand, the Xbox Live online playing system is a complement. Similarly, Amazon's shipping services complements its third-party sellers' offerings, but the products Amazon sells under its own name compete with them. Professors Hagiu and Spulber examine the incentives that two-sided platforms have to invest in first-party content in order to coordinate adoption by both sides. The authors show that the incentives for firms to use first-party content depend crucially on the nature of buyers' and sellers' expectations and the relationship between first-party content and third-party seller participation (complements or substitutes). Read More

Decoding Insider Information and Other Secrets of Old School Chums

Associate Professors Lauren H. Cohen and Christopher J. Malloy study how social connections affect important decisions and, ultimately, how those connections help shape the economy. Their research shows that it's possible to make better stock picks simply by knowing whether two industry players went to the same college or university. What's more, knowing whether two congressional members share an alma mater can help predict the outcome of pending legislation on the Senate floor. Open for comment; 1 Comment posted.

Managing Political Risk in Global Business: Beiersdorf 1914-1990

After the outbreak of World War 1, management of political risk became a central concern for firms, especially those operating internationally. These risks were on many levels, from expropriation to exchange controls and other economic policies. German firms, which had flourished during the second industrial revolution of the late nineteenth century, and enthusiastically expanded internationally, found themselves especially exposed to such risks. Focusing on one such firm, Beiersdorf, a German-based pharmaceutical and skin care company (and, during the Nazi years, a so-called Jewish business), the authors examine corporate strategies of political risk management during the twentieth century, especially the volatile years of Nazi Germany. The history of Beiersdorf highlights areas of managerial discretion. Faced by the worst of all worlds, the firm survived and was able, albeit at great cost, to rebuild its business. Read More

So We Adapt. What’s the Downside?

Summing Up Jim Heskett's readers ponder the question of whether the virtues of adaptability in a chaotic world undermine an organization's ability to commit. Closed for comment; 28 Comments posted.

The Impact of Forward-Looking Metrics on Employee Decision Making

In marketing, the use of the customer lifetime value (CLV) metric encourages a focus on long-term customer relationships over short-term sales. This paper examines a situation in which a European bank introduced CLV data to its customer-facing employees, while still maintaining the incentives linked to short-term profitability; the goal was to discover whether and how these employees would modify their mortgage sales decisions. Research was conducted by Pablo Casas-Arce of Universitat Pompeu Fabra, and F. Asís Martínez-Jerez and V.G. Narayanan of Harvard Business School. Read More

Individual Rationality and Participation in Large Scale, Multi-Hospital Kidney Exchanges

As kidney exchange moves from local networks to a national level, a new set of problems arises. One central issue, for example, is how individual hospitals can be motivated to participate. This paper by Itai Ashlagi (Sloan School of Management, MIT) and Alvin E. Roth (Harvard Business School) provides a theoretical framework to study and overcome the kinds of problems that can be anticipated. Read More

Platform Competition under Asymmetric Information

Research by Hanna Halaburda (Harvard Business School) and Yaron Yehezkel (Tel Aviv University) shows how pricing, profits, and market efficiency are affected in two-sided markets, such as with smartphone and video game platforms, when users and developers do not know the utility or costs associated with the platform until they join. Read More

Marketplace Institutions Related to the Timing of Transactions

Certain markets face the problem of "unraveling," in which competition for good talent leads a firm to make job offers earlier and earlier, without sufficient knowledge about any given applicant—and in which applicants are forced to decide whether to accept a job before they really know much about working for that firm. Harvard Business School professor Alvin E. Roth discusses how this issue affects the labor markets for new lawyers and gastroenterology fellows, as well as the market for postseason college football bowls. Read More

How Firm Strategies Influence the Architecture of Transaction Networks

In business, an "ecosystem" refers to a group of firms that work together through a series of shared transactions to provide a complex product or service. Using data from the disparate Japanese electronics and automotive sectors, this paper tackles the following questions: Do hierarchies of interfirm transaction networks vary across different ecosystems? What practices explain the difference in hierarchy across these two ecosystems? How do firms' strategies influence hierarchy? And what environmental factors explain the differences in the largest firm's strategies in each ecosystem? Research was conducted by Carliss Y. Baldwin of Harvard Business School and Jianxi Luo, Daniel E. Whitney, and Christopher L. Magee of the Massachusetts Institute of Technology. Read More

Naivete and Cynicism in Negotiations and Other Competitive Contexts

In business and in life, it's important to strike a smart balance between naïveté and cynicism. Act too naïvely, and someone is bound to take advantage of you. Skew cynical, and you may miss out on new opportunities with good people. This paper discusses the decision errors inherent in leaning too far in either direction. Research was conducted by Chia-Jung Tsay, Lisa. L. Shu, and Max H. Bazerman of Harvard Business School. Read More

It Pays to Hire Women in Countries That Won’t

South Korean companies don't hire many women, no matter how qualified. So multinationals are moving in to take advantage of this rich hiring opportunity, according to new research by professor Jordan Siegel. Read More

The Effect of Market Leadership in Business Process Innovation: The Case(s) of E-Business Adoption

The connection between market leadership and the adoption of new technologies is central to understanding how firms maintain or gain competitive advantage over time. One key determinant of firm openness to either product or process innovation is how radical or incremental a particular change is for the organization. Using the context of IT-enabled business processes for e-buying and e-selling, a setting that offers a complementary view to studies that have focused on R&D expenditure and patents as measures of innovation, HBS professor Kristina McElheran sheds light on whether, when, and why market leaders might be more likely to adopt new innovations. This study represents the first robust, multi-industry evidence that market leaders are far more likely to adopt incremental rather than radical business process innovations. Read More

Platforms and Limits to Network Effects

Why do platforms that restrict choice and charge higher prices seem to prosper alongside platforms offering cheap or free unlimited choice? In the online dating market, for example, eHarmony deliberately limits the number of candidates available to its customers. Headhunters show only a few candidates to the companies, and even fewer companies to the candidates. In the housing market, brokers limit the number of houses they show to potential buyers and sellers. In this paper, HBS professors Hanna Halaburda and Mikolaj Jan Piskorski challenge conventional understanding of platform competition and network effects by describing a two-sided matching environment and studying the indirect network effects in this environment. They show that the interplay between more choice and more competition influences the strength of network effects and attractiveness of a platform. Some agents may opt for a platform with few choices to avoid higher levels of competition. The researchers' model helps explain why platforms that limit their choice set coexist (and thrive) alongside platforms that offer greater choice. Read More

How Do You Weigh Strategy, Execution, and Culture in an Organization’s Success?

Summing up: Respondents who ventured to place weights on the determinants of success gave the nod to culture by a wide margin, says HBS professor Jim Heskett. (Online forum now closed. Next forum opens July 2.) Closed for comment; 77 Comments posted.

Location Strategies for Agglomeration Economies

Locations thick with similar economic activity expose firms to pools of skilled labor, specialized suppliers, and potential inter-firm knowledge spillovers that can provide firms with opportunities for competitive advantage. While certainly attractive, the lure of these agglomeration economies varies. Some firms should be wary of aiding their competitors by co-locating with them, for example, because each "agglomeration economy" differs in how readily competitors can leverage contributions made by others. HBS professor Juan Alcácer and Wilbur Chung of the University of Maryland develop a framework to better understand how firms respond to agglomeration economies. Read More

Local R&D Strategies and Multi-location Firms: The Role of Internal Linkages

While geographic co-location has obvious benefits for firm innovation, it can also have serious drawbacks. HBS professor Juan Alcácer and Ross School of Business professor Minyuan Zhao explore how firms tap into the rich resources of technology clusters while protecting the value of their innovations. To understand R&D dynamics in a cluster, the scholars argue, we must recognize that a firm located in a particular cluster may also be part of an extended network, with its operations strategically integrated across multiple locations and multiple business lines. Read More

Conceptual Foundations of the Balanced Scorecard

This article documents the precursors of the Balanced Scorecard (BSC) strategic performance management tool and describes the evolution of the BSC since its introduction in 1992 in the Harvard Business Review. During the last 15 years, the BSC has been adopted by thousands of private, public, and nonprofit enterprises around the world. HBS professor Robert S. Kaplan, who created the concept and tool with David Norton, explains the roots and motivation for their original article as well as subsequent innovations that connect it to a larger management literature. Read More

A Reexamination of Tunneling and Business Groups: New Data and New Methods

"Tunneling" refers to efforts by firms' controlling owner-managers to take money for themselves at the expense of minority shareholders. Looking at emerging economies in general and at India in particular, HBS professor Jordan I. Siegel and doctoral student Prithwiraj Choudhury argue for a simultaneous analysis of corporate governance and strategic activity differences in order to reveal the quality of firm-level corporate governance. The development of rigorous methodology in corporate governance is not merely an academic issue but has enormous real-world consequences. It is critical that scholars gain deeper empirical and theoretical insights into the question of whether these business groups serve primarily as theft devices for the controlling owners, or whether they serve primarily as a positive force that enables the creation of scale and scope efficiencies. Read More

The Outside-In Approach to Customer Service

Is your enterprise resilient or rigid? In this Q&A, HBS professor Ranjay Gulati, an expert on leadership, strategy, and organizational issues in firms, describes how companies can evolve through four levels to become more customer-centric. Plus: book excerpt from Reorganize for Resilience: Putting Customers at the Center of Your Business. Read More

State Owned Entity Reform in Absence of Privatization: Reforming Indian National Laboratories and Role of Leadership

Is privatization necessary? In India and across emerging markets, state-owned entities (SOEs) continue to make up a large proportion of industrial sales, yet they lag behind private counterparts on performance measures. But SOEs may be able to significantly improve performance even in the absence of property rights, according to HBS doctoral candidate Prithwiraj Choudhury and professor Tarun Khanna. As they document, 42 Indian state-owned laboratories started from a base of negligible U.S. patents, yet in the period 1993-2006 (during which the Indian government launched an ambitious privatization program), the labs were granted more patents than all domestic private firms combined. The labs then licensed several of these patents to multinationals, and licensing revenue increased from 3 percent to 15 percent as a fraction of government budgetary support. Findings are relevant to firms and R&D entities around the world that depend on varying degrees of government budgetary support and government control, especially in emerging markets like India, where SOEs control up to one-third of all industrial activity. Read More

Why Are Web Sites So Confusing?

Just as bread and milk are often found at far-away ends of the supermarket, Web sites that match consumers with certain products have an incentive to steer users to products that yield the highest margins. The result: a compromise between what users want and what produces the most revenues, say HBS professor Andrei Hagiu and Toulouse School of Economics researcher Bruno Jullien. A look inside the world of search. Read More

Culture Clash: The Costs and Benefits of Homogeneity

Culture clash is often considered a major cause for the failing of mergers and acquisitions, and for this reason it is an important consideration for corporate strategy. Although less publicized, culture clash has also plagued alliances and long-term market relationships. It provides a unique lens on the performance effects of corporate culture itself, and thus culture's potential to generate a competitive advantage. This paper develops an economic theory of the costs and benefits of corporate culture—in the sense of shared beliefs and values—in order to study the effects of culture clash in mergers and acquisitions. Read More

Corporate Social Responsibility in a Downturn

Financial turmoil is not a reason to scale back on CSR programs—quite the opposite, says HBS professor V. Kasturi "Kash" Rangan. As a marketing scholar Rangan is optimistic about strategic CSR efforts that provide value in communities and society. Q&A Read More

GM: What Went Wrong and What’s Next

For decades, General Motors reigned as the king of automakers. What went wrong? We asked HBS faculty to reflect on the wrong turns and missed opportunities of the former industry leader, and to suggest ideas for recovery. Read More

Capitalizing On Innovation: The Case of Japan

How can Japan create a better business environment for innovation? Japan presents a unique case of industrial structures that have produced remarkable developments in certain sectors but seem increasingly inadequate to do the same in modern technology industries, which rely on ecosystems of firms producing complementary products. Robert Dujarric and HBS professor Andrei Hagiu present three case studies of software, animation, and mobile telephony to illustrate potential sources of inefficiencies. Like all advanced economies, Japan faces two interconnected challenges. The first challenge is rising competition from lower-cost countries with the capacity to manufacture midrange and in some cases advanced industrial products. At the same time, Japan confronts changes in the relative weights of manufacturing and services, including soft goods, which go against the country's long-standing competitive advantage and emphasis on manufacturing. If Japan is to continue to prosper in a world where its ability to rely principally on manufacturing will diminish, its policymakers will need to capitalize on its untapped innovative power. Read More

Where is the Pharmacy to the World? International Regulatory Variation and Pharmaceutical Industry Location

The era of paternalistic medicine has passed, but the notion that patients can act as consumers and make appropriate decisions concerning medical treatment poses countervailing risks of its own. A better accommodation among key players needs to be struck to foster the safe use of pharmaceuticals, according to HBS professor Arthur Daemmrich. The "pharmacy to the world," once located at the intersection of Germany, Switzerland, and France, today is found in the United States. Studies of the industry have attributed this sustained competitive advantage to a variety of factors, including U.S. intellectual property policies, funding for biomedical research through the National Institutes of Health, the absence of government controls on drug prices, and the availability of venture capital and other factors that fostered the growth of the biotechnology industry. The data and analysis presented in this working paper, however speculative, are an initial step toward deepening the understanding of interrelationships between government regulation, patients' mobilization both as regulators and as consumers, and the functioning of the pharmaceutical industry. Read More

The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization

Corporate hierarchies are becoming flatter: Spans of control have broadened, and the number of levels within firms has declined. But why? Maria Guadalupe of Columbia University and HBS professor Julie M. Wulf investigate how increased competition in product markets—and, in particular, product market competition resulting from trade liberalization—may be fundamentally altering how decisions are being made. Guadalupe and Wulf also shed light on the possible reasons behind certain organizational choices and on the importance of communication and decision-making processes inside firms. Read More

Platform Competition, Compatibility, and Social Efficiency

The last three decades have witnessed unprecedented growth in network industries such as video games, computers, credit cards, media, and telecommunications. These industries are often organized around physical or virtual platforms that enable distinct groups of agents to interact with one another, and are commonly referred to as two-sided markets or markets with two-sided platforms. An operating systems developer such as Microsoft, for example, provides a software platform that makes possible the completion of value-creating transactions between independent software vendors and users. A key attribute of the market that determines the intensity and scope of network effects is whether or not competing platforms are compatible. The effects of platform (in)compatibility on market outcomes, however, have largely been ignored by the literature on markets with two-sided platforms. This paper develops an explanation of why markets with two-sided platforms are often characterized by incompatibility with one dominant player that may choose to subsidize access to one side of the market. Read More

Unravelling in Two-Sided Matching Markets and Similarity of Preferences

Hiring policy is one of the most important determinants of a firm's success. The hiring process calls for collecting information in order to choose the best individual from among the candidates. In certain markets, however, firms hire workers long before all the pertinent information is available. Those early matches often turn out to be inefficient when the job starts. This phenomenon of contracting long before the job begins, and before relevant information is available, is called unravelling. Unravelling has been recognized as a serious problem in numerous markets, and measures designed to preclude it (such as centralized clearinghouses and enforcement of uniform hiring) have not always been successful. In order to provide insights for designing better measures to prevent unravelling in markets prone to it, this paper examines a two-sided matching market populated by firms on one side and workers on the other. Read More

Applicant and Examiner Citations in U.S. Patents: An Overview and Analysis

The ready availability of patent citation data has been a tremendous boon to applied research on knowledge and innovation. The role of examiners in the generation of patent citations has been thought to potentially complicate these analyses, but has been difficult to study. Taking advantage of a change in the way patent citation data has been reported starting in 2001, this paper summarizes basic facts on examiner citations, and provides a descriptive analysis of factors associated with citations in a patent. Read More

The Architecture of Platforms: A Unified View

Product and system designers have long exploited opportunities to create families of complex artifacts by developing and recombining modular components. An especially common design pattern is associated with the concept of a platform, which Baldwin and Woodard define as a set of stable components that supports variety and evolvability in a system by constraining linkages among the other components. In this paper, the authors shed light on the relationships between platforms and the systems in which they are embedded to better understand and explain firms and industries where platforms play an important role. Read More

How Economics May Lead to Better Football Games

When economists watch football games they see more than flying pigskin and stadiums overflowing with fans. In the case of U.S. college football, Harvard Business School professor Alvin E. Roth along with Guillaume R. Fréchette and M. Utku Ünver studied the timing of team selection for championship bowls. What they found: Good teams are much better matched up than they used to be, and there are implications beyond sports. Q&A with Al Roth. Read More

Exploring the Duality between Product and Organizational Architectures: A Test of the Mirroring Hypothesis

Products are often said to "mirror" the architectures of the organization from which they come. Is there really a link between a product's architecture and the characteristics of the organization behind it? The coauthors of this working paper chose to analyze software products because of a unique opportunity to examine two different organizational modes for development, comparing open-source with proprietary "closed-source" software. The results have important implications for development organizations given the recent trend toward "open" approaches to innovation and the increased use of partnering in research and development projects. Read More

Billions of Entrepreneurs in China and India

Entrepreneurship in both China and India is rising dramatically and thriving under quite different conditions. HBS professor Tarun Khanna explains what it all means in this Q&A about his new book, Billions of Entrepreneurs: How China and India Are Reshaping Their Futures and Yours. Plus: book excerpt. Read More

The Impact of Component Modularity on Design Evolution: Evidence from the Software Industry

What factors should influence the design of a complex system? And what is the impact of choices on both product and organizational performance? These issues are of particular importance in the field of software given how software is developed: Rarely do software projects start from scratch. The authors analyzed the evolution of a commercial software product from first release to its current design, looking specifically at 6 major versions released at varying periods over a 15-year period. These results have important implications for managers, highlighting the impact of design decisions made today on both the evolution and the maintainability of a design in subsequent years. Read More

Competition in Modular Clusters

The last 20 years have witnessed the rise of disaggregated "clusters," "networks," or "ecosystems" of firms in a number of industries, including computers, telecommunications, and pharmaceuticals. In these clusters, different firms design and produce the various components of a complex artifact (such as the processor, peripherals, and software of a computer system), and different firms specialize in the various stages of a complex production process. This paper considers the pricing behavior and profitability of these so-called modular clusters. Baldwin and Woodard isolate the offsetting price effects in a model, and show how they might operate in large as well as in small clusters. Read More

Recognizing the New: A Multi-Agent Model of Analogy in Strategic Decision-Making

Firms must discover and pursue viable strategic positions particularly during times of change, in the early phases of a new industry, or after a discontinuity of some sort. At these times, the context of choice is typically hard to interpret: Among other reasons, knowledge of cause-and-effect relationships is unavailable or difficult to obtain, the nature of industry participants is ambiguous, and opportunities are ill-defined. What underlies the intelligence of strategic choice in these settings? This paper argues that recognition is essential to such choices for both individuals and groups. Recognition refers to a class of cognitive processes through which a problem or situation is interpreted associatively in terms of something that has been experienced before. The paper models recognition processes in groups of decision-makers and shows how a few select group-level characteristics might improve recognition outcomes. Read More

Climate Change Puts Heat on GMs

Ready or not, companies are being swept up in the increasing public debate over global climate change. How should firms respond? A case study exploring how financial service giant UBS thinks through the issues has students coming down on different sides. Read More

Dealing with the ‘Irrational’ Negotiator

"Negotiators who are quick to label the other party 'irrational' do so at great potential cost to themselves," say HBS professors Deepak Malhotra and Max H. Bazerman. Their new book, Negotiation Genius, combines expertise in psychology with practical examples to show how anyone can improve dealmaking skills. In this excerpt, Malhotra and Bazerman describe what to do when the other party's behavior does not make sense. Read More

Modularity, Transactions, and the Boundaries of Firms: A Synthesis

For the last 30 years economists have used the concepts of "transaction," "transaction cost," and "contract" to illuminate a wide range of phenomena, including vertical integration; the design of employment, debt, and equity contracts; and the structure of industries. These concepts are now deeply embedded in the fields of economics, sociology, business, and law. Theories explain how to choose between different forms of transactional governance. But why does a transaction occur where it does? Without this answer, the forces driving the location of transactions in a system of production remain largely unexplored. This paper explains the location of transactions (and contracts) in a system of production. It also presents a theory of technological change that predicts changes in the location of transactions and therefore in the structure of industries. Read More

Exclusivity and Control

Music, television shows, movies, Internet and mobile content, computer software, and other forms of media often require a consumer to join a platform in order to access or utilize the media. This affiliation may take the form of a subscription to a distribution channel or purchase of a hardware device. One of the primary means of differentiation and competition between platforms for consumer adoption is the acquisition of premium or quality content. However, whether or not certain content is exclusive to one platform or is present on multiple platforms varies significantly from industry to industry. One can even view Apple's exclusive U.S. provision of the iPhone to AT&T as even more variation in the degree of exclusivity across industries. Why is it that some forms of content are available only on one platform, while others are distributed through several or all platforms available—that is, they "multihome"? This paper analyzes industry propensity for exclusivity and presents a model of platform competition. The key driving force is the nature of the relationship between the content and the platforms: outright sale (all control rights, particularly over content pricing, are transferred from the content provider to the platform) or affiliation (the content provider maintains control rights over pricing). Read More

Managing Proprietary and Shared Platforms: A Life-Cycle View

The challenges facing platform managers vary systematically depending on (1) whether the platform is proprietary or shared and (2) the stage of platform development. This article summarizes the results of a multiyear research project on platform strategies, including interviews with 30 companies. It describes 3 stages of the platform life cycle—platform design, network mobilization, and platform maturity—and reviews in depth the strategic decisions and management issues for each stage. Read More

Merchant or Two-Sided Platform?

With ever more sophisticated logistics and the rise of information technologies, intermediaries and market platforms have become increasingly ubiquitous and important agents in the digital economy. While market intermediation is not a new phenomenon, the digital economy has revealed that there can be two polar types of intermediaries: "merchants," which acquire goods from sellers and resell them to buyers, and "two-sided platforms," which allow affiliated sellers to sell directly to affiliated buyers. As examples, retailers like Walmart.com and Amazon.com are (mostly) merchants; eBay is a pure two-sided platform; and Apple's iTunes digital music store exhibits both merchant and platform features. This research is a first pass at delineating the economic tradeoffs between the merchant and two-sided platform modes. Read More

What Causes Industry Agglomeration? Evidence from Coagglomeration Patterns

Most industries exhibit some degree of geographic concentration. Although many theories attempt to explain this agglomeration, empirical tests of these theories are difficult as they all predict similar outcomes within individual industries. This study considers how industries coagglomerate—that is, which industry pairs locate together—to form a tractable analysis. The authors specifically study the relative importance of proximity to suppliers and customers, to firms using similar labor, and the sharing of ideas for explaining agglomeration. Read More

Organizational Response to Environmental Demands: Opening the Black Box

How and why do organizations respond differently to pressures from different stakeholders? This question is central to organizational theory and feeds into strategic management research as well. Delmas and Toffel develop and test a model that describes why organizations respond differently to similar stakeholder pressures. They suggest that differences in how organizations distribute power across their internal corporate departments lead their facilities to prioritize different institutional pressures and thus adopt different management practices. Read More

Architectural Innovation and Dynamic Competition: The Smaller “Footprint” Strategy

To study dynamic competition, Baldwin and Clark build upon a design principle in computer architecture known as Amdahl's Law. The authors show that firms can study the underlying cause-and-effect relationships in a complex architecture in order to identify "bottlenecks." Firms may then redesign the interfaces of key components to make them more modular. They can then outsource more activities without sacrificing performance or cost. As a result, firms can offer competitive products or services, while investing less, and so enjoy an "invested capital advantage" over competitors. Baldwin and Clark explain how the strategy works and then model its impact on competition through successive stages of industry evolution. Read More

Optimal Value and Growth Tilts in Long-Horizon Portfolios

Long-term investors look for portfolio strategies that optimally trade off risk and reward, not in the immediate future, but over the long term. It is unrealistic to expect long-term investors to adopt an "invest and forget" strategy, but creating a portfolio strategy that adjusts asset allocations in response to changing risk premia, interest rates, and expected inflation remains a challenge in finance. Jurek and Viceira have devised a solution method that aims at a practical implementation of dynamic portfolio choice models with realistically complex investment opportunity sets. They have applied their method to study the role of value stocks and growth stocks in the portfolios of long-term investors, and have found that long-term investors might want to tilt their portfolios away from value stocks despite the fact that the average return on value stocks is larger than the average return on growth stocks (the so-called "value premium"). Their findings provide support for the idea that the superior performance of value stocks might reflect simply that they are riskier than growth stocks at long horizons. Read More

How To Make Restructuring Work for Your Company

A bungled corporate restructuring can turn a good idea into disaster. In an excerpt from his new book, HBS professor Stuart Gilson outlines the keys for a successful corporate makeover. Plus: Gilson Q&A. Read More

Riding the Internet Fast Track

On the Internet Express, getting big fast is the strategy of choice. But is it right for everyone? HBS Professor Thomas R. Eisenmann looks at key factors that can help a company decide. Read More