This note by Gary P. Pisano provides a framework for designing an R&D strategy. It starts with the simple notion that a strategy is a system approach to solving a problem. An R&D strategy is defined a coherent set of interrelated choices across decision concerning: organizational architecture, processes, people, and project portfolios. To illustrate the framework, we use examples of three pharmaceutical companies and examine how their different R&D strategies were rooted in different assumptions about the core driver of R&D performance. This suggests that the very first question to be answered in strategy development is: What's our shared understanding of the root cause of the problem we are trying to solve?
Managers need to stop thinking of teams as static groups of individuals who have ample time to practice interacting successfully and efficiently, says Amy Edmondson in her new book, Teaming: How Organizations Learn, Innovate, and Compete in the Knowledge Economy. The reason: Today's corporate teams band and disband by the minute, requiring a more dynamic approach to how teams absorb knowledge.
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.
It's not lonely at the top anymore—today's CEO has an average of 10 direct reports, according to new research by Julie M. Wulf, Maria Guadalupe, and Hongyi Li. Thank a dramatic increase in the number of "functional" managers for crowding in the C-suite.
In platform competition in a two-sided market, a platform's ability to attract consumers depends not only on the consumers' beliefs regarding its quality, but also on consumers' beliefs regarding the platform's ability to attract the other side of the market. For example, in the market for smart-phones the recent introductions of Apple's iPhone 4S with the improved operating system, and Samsung's Galaxy II with the improved Android 4, open a new round in the competition between the two platforms. The ability of each platform to attract users depends not only on its perceived quality, but also on users' beliefs regarding the number new applications developed for the platform. Likewise, the ability to attract application developers to the platform depends on their beliefs regarding the number of users that will join the platform. In a competitive market, some platforms may enjoy more favorable beliefs of the market (about their ability to attract ``the other side) than other platforms. Such a belief advantage may be source of a competitive advantage. In this paper, the authors look at how the belief advantage helps the platform to compete in the market, and also how a platform may create the belief advantage. The authors find that the degree of the platform's belief advantage affects its decision regarding its business model (whether to subsidize buyers or sellers), as well as the access fees and the size of the platform. Moreover, the paper looks into the optimal advertising strategy that leads to creating belief advantage. This paper contributes to scholarship on economics and business strategy.
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.
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.
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.
Published in 2011
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.
Harvard Business School professor Julio J. Rotemberg looks at what makes people decide to contribute to a charity. He focuses on two psychological factors: that people feel better about themselves when other people agree with them, and that people tend to be more charitable to other like-minded people.
Because of an organ shortage, hundreds or even thousands of people miss out on needed organ transplants each year. Business researchers at Harvard and MIT are rethinking how kidney transplants are allocated to give patients longer lives. An interview with professor Nikolaos Trichakis.
Running a financial organization, never easy to begin with, has quickly become one of the most difficult leadership challenges that an executive can undertake, requiring mastery of talent management, change management, and ethics. An interview with Professor Boris Groysberg, who teaches a new HBS Executive Education program on the subject with Professor Paul M. Healy.
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.
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.
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.
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).
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.
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.
Why might firms make operational decisions that purposefully do not maximize expected profits? This model looks at the question by developing scenarios using the example of inventory management in the face of an external investor. The research was conducted by Vishal Gaur of Cornell University, Richard Lai of the University of Pennsylvania, and Ananth Raman and William Schmidt of Harvard Business School.
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.
