- 17 Feb 2009
- Research & Ideas
What’s Good about Quiet Rule-Breaking
If your company quietly allows employees to break some rules with the tacit approval of management, that's a moral gray zone. And your company is not alone. When rules are broken but privileges are not abused, such unspoken pacts between workers and management can allow both to achieve their respective goals of expressing professional identity and sustaining efforts in positive ways, says HBS professor Michel Anteby. Q&A Key concepts include: Moral gray zones in organizations rely on trust. Even if monitoring of employees increases, such gray zones are here to stay. Moral gray zones test middle management's ability to manage and to prevent abuses of mutual trust. Strong communities within occupations provide the unstated but necessary guidelines to ensure proper use of moral gray zones. Closed for comment; 0 Comments.
- 12 Feb 2009
- Working Paper Summaries
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. Key concepts include: This paper provides a theory for why firms may choose to make their platforms incompatible. Incompatibility might lead to market dominance and high profits by one of the platform providers, even if both providers are ex ante identical and there are no fixed costs of operation. Closed for comment; 0 Comments.
- 11 Feb 2009
- Working Paper Summaries
Goals Gone Wild: The Systematic Side Effects of Over-Prescribing Goal Setting
For decades, goal setting has been promoted as a halcyon pill for improving employee motivation and performance in organizations. Advocates of goal setting argue that for goals to be successful, they should be specific and challenging, and countless studies find that specific, challenging goals motivate performance far better than "do your best" exhortations. The authors of this article, however, argue that it is often these same characteristics of goals that cause them to "go wild." Key concepts include: The harmful side effects of goal setting are far more serious and systematic than prior work has acknowledged. Goal setting harms organizations in systematic and predictable ways. The use of goal setting can degrade employee performance, shift focus away from important but non-specified goals, harm interpersonal relationships, corrode organizational culture, and motivate risky and unethical behaviors. In many situations, the damaging effects of goal setting outweigh its benefits. Managers should ask specific questions to ascertain whether the harmful effects of goal setting outweigh the potential benefits. Closed for comment; 0 Comments.
- 10 Feb 2009
- First Look
- 09 Feb 2009
- Research & Ideas
Uncompromising Leadership in Tough Times
As companies batten down the hatches, we need leaders who do not compromise on standards and values that are essential in flush times. Fortunately, such leaders do exist. Their insights can help other organizations weather the current crisis, says HBS professor Michael Beer. Q&A. Key concepts include: The CEOs in high commitment, high performance (HCHP) organizations are quite different in personality, background, and leadership style. But they are similar in what they see as the purpose of the firm. Among employees at large, there is a danger that commitment to an organization can undermine work-life balance. Successful CEOs are good role models. In addition to open and honest communication and continued investment in HCHP management practices, corporations need to develop an a priori set of policies in advance of the crisis that will minimize damage from restructuring and downsizing and maintain employee dignity and commitment. Closed for comment; 0 Comments.
- 05 Feb 2009
- What Do You Think?
Why Can’t We Figure Out How to Select Leaders?
Managers discuss their own experience in organizations in response to February's column. All good leaders teach as well as learn, says Jim Heskett. Is it possible with any degree of confidence to select people for certain leadership jobs? (Forum now closed. Next forum begins March 5.) Closed for comment; 0 Comments.
- 05 Feb 2009
- Research & Ideas
In Praise of Marketing
Marketers do a surprisingly poor job of marketing Marketing, says professor John Quelch. "They do not appreciate, let alone articulate, the economic and social benefits of marketing." Here is the story that needs to be told. Key concepts include: Seventeen million Americans engaged in marketing go about their daily work contributing brilliantly but often unknowingly to our quality of life. Respectable marketers need to work harder to expose and shut down the charlatans. Modern marketing is more than just selling. It involves design, branding, communication, and distribution. Marketing is as much art as science, as much right brain as left brain. Closed for comment; 0 Comments.
- 04 Feb 2009
- Working Paper Summaries
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. Key concepts include: Unravelling prevails in certain markets because some employers see a better chance to hire their most-preferred candidates when they contract early than when they wait. Unravelling becomes more likely as firms' preferences over workers grow more similar. This is the case because when firms' preferences are very similar, lower-ranked firms can be matched with their most-preferred workers only by contracting with them early. Despite insufficient information in the first period, it may be worthwhile for lower-ranked firms to bear the risk and contract early. The firms most likely to unravel are those "in the middle"—bad enough to prefer the uncertainty of early contracting, but good enough to be accepted. From a policy standpoint, a mechanism that precludes unravelling is preferable in some circumstances. Closed for comment; 0 Comments.
- 03 Feb 2009
- First Look
- 02 Feb 2009
- Research & Ideas
The Success of Persistent Entrepreneurs
Want to be a successful entrepreneur? Your best bet might be to partner with entrepreneurs who have a track record of success, suggests new research by Paul A. Gompers, Josh Lerner, David S. Scharfstein, and Anna Kovner. Key concepts include: Previously successful entrepreneurs are significantly more likely to lead successful new ventures than first-timers or those who previously failed. Successful entrepreneurs are adept at selecting the right industry and time to start new ventures. Suppliers and customers are more likely to back a person with previous successes. Closed for comment; 0 Comments.
- 29 Jan 2009
- Working Paper Summaries
An Exploration of the Japanese Slowdown during the 1990s
Why was the 1990s a lost decade for Japan? HBS professor Diego Comin argues that it was the combination of some shocks that lasted for about three years and the response of companies that drastically reduced their expenses in adopting new technologies and developing new ones. Though the severe shocks that hit the Japanese economy did not persist, the investments that Japanese companies and entrepreneurs did not undertake to improve technology and production methods during the 1990s propagated those shocks and made their effects very long-lasting. Key concepts include: Technology adoption decisions by firms are a powerful force in propagating shocks and making their effects very persistent. This explains why shocks that lasted for about three years generated a productivity slowdown over a decade. This same model accounts for economic fluctuations in the U.S. In light of this, a critical factor to predict the macro consequences of the current financial crisis in the U.S. is the persistence of the shocks. Since the current shocks are unlikely to last for three years or so, it is unlikely that the U.S. experiences a "lost decade." Closed for comment; 0 Comments.
- 27 Jan 2009
- First Look
- 26 Jan 2009
- Research & Ideas
Where is Home for the Global Firm?
Global markets are changing the relationship between firms and nation-states in important ways, says HBS professor Mihir A. Desai. His new working paper, "The Decentering of the Global Firm," offers a practical framework for business leaders to think strategically about where to locate their company's financial and legal homes, and managerial talent. Q&A with Desai. Key concepts include: Three critical aspects of a firm's national identity—its legal and financial home and its center for managerial talent—are increasingly distributed worldwide. There are benefits and costs to decentering, says Desai. The challenge for managers is to choose each home wisely. Firms that have left their traditional homebase include News Corporation, Shire Pharmaceuticals, Halliburton, and WPP Group, among others. Closed for comment; 0 Comments.
- 26 Jan 2009
- Working Paper Summaries
The Decentering of the Global Firm
Firms such as Caterpillar are typically considered American companies by virtue of history while Honda, for example, is regarded as a Japanese company. However, the archetypal multinational firm with a particular national identity and a corporate headquarters fixed in one country is becoming obsolete as firms continue to maximize the opportunities created by global markets. The defining characteristics of what makes a firm belong to a country—where it is incorporated, where it is listed, the nationality of its investor base, the location of its headquarters functions—are no longer bound to one country. Why are these changes taking place, and what are their consequences? This paper places the increasing mobility of corporate identities within the broader setting of transformations to the "shape" of global firms over the last half century. Key concepts include: Responding strategically to these changes requires a reconceptualization of what a corporate home is. Managers will make conscious choices about how to unbundle activities that have traditionally been centered in a home country headquarters. Policymakers in countries around the world need to understand how to create attractive homes for firms, and researchers need to devise ways to incorporate these changes in their empirical and theoretical work. Closed for comment; 0 Comments.
- 22 Jan 2009
- Working Paper Summaries
Turbulent Firms, Turbulent Wages?
Has more creative destruction among firms raised wage volatility in the United States? Most of the related research on the remarkable and well-documented widening of wage inequality in the U.S. over the past three decades focuses on permanent components of workers' earnings, particularly the rising returns to education and ability associated with technological change, trade, and de-unionization. Less is known, however, about the contribution of larger transitory fluctuations. HBS professor Comin and colleagues explore whether workers' average pay is more volatile in firms that have experienced higher turbulence in sales. Findings have important implications for theories of labor markets and optimal wage compensation schemes. Key concepts include: The performance of publicly-traded U.S. firms has become much more volatile over the past three decades. Rising turbulence in sales among U.S. firms has raised their workers' wage volatility, increasing wage risks for many workers. Workers' average pay is more volatile in firms that have experienced higher turbulence in sales. This is true even after controlling for firm characteristics, including average wage, average profits, size, age, or firm-specific fixed effects. Evidence of a correlation between firm and wage volatility does not reflect reorganization within companies. The effect is strong and has grown markedly since the 1980s. This reflects an increasing reliance of compensation schemes that put a larger weight on the firm performance. Closed for comment; 0 Comments.
- 21 Jan 2009
- Working Paper Summaries
The Supply Side of Innovation: H-1B Visa Reforms and US Ethnic Invention
The H-1B visa program governs most admissions of temporary immigrants into the U.S. for employment in patenting-related fields. This program has become a point of significant controversy in the public debate over immigration, with proponents and detractors at odds over how important H-1B admission levels are for U.S. technology advancement and whether native U.S. workers are being displaced by immigrants. In this study, Kerr and Lincoln quantify the impact of changes in H-1B admission levels on the pace and character of U.S. invention over the 1995-2006 period. Key concepts include: Immigrants represented 24 percent and 47 percent of the U.S.'s scientists and engineers (S&Es) with bachelors and doctorate educations in the 2000 Census, respectively. Immigrants have accounted for most of the net increase in U.S. S&Es since 1995. Because it governs the admissions of many S&E immigrants, the H-1B program plays an important role in U.S. innovation. Moreover, the policy shifts in this program have been relatively large compared to other policies concerning immigration or innovation. Fluctuations in H-1B admissions levels significantly influence the rate of Indian and Chinese patenting in cities and firms dependent upon the program relative to their peers. Most specifications find little impact on the invention rates of native U.S. workers, although a small crowding-in effect may exist. Most increases in U.S. innovation with higher H-1B admissions come through direct contributions of the immigrants themselves. Closed for comment; 0 Comments.
- 21 Jan 2009
- First Look
- 20 Jan 2009
- Research & Ideas
Risky Business with Structured Finance
How did the process of securitization transform trillions of dollars of risky assets into securities that many considered to be a safe bet? HBS professors Joshua D. Coval and Erik Stafford, with Princeton colleague Jakub Jurek, authors of a new paper, have ideas. Key concepts include: Over the past decade, risks have been repackaged to create triple-A-rated securities. Even modest imprecision in estimating underlying risks is magnified disproportionately when securities are pooled and tranched, as shown in a modeling exercise. Ratings of structured finance products, which make no distinction between the different sources of default risk, are particularly useless for determining prices and fair rates of compensation for these risks. Going forward, it would be best to eliminate any sanction of ratings as a guide to investment policy and capital requirements. It is important to focus on measuring and judging the system's aggregate amount of leverage and to understand the exposures that financial institutions actually have. Closed for comment; 0 Comments.
- 15 Jan 2009
- Sharpening Your Skills
Sharpening Your Skills: Career & Life Balance
Achieving a life that balances the pleasures and demands of work and life has never been easy. Here are four HBS Working Knowledge stories from the archives that address everything from spirituality in leadership to understanding when "just enough" is truly enough. Closed for comment; 0 Comments.
First Look: February 18, 2009
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