Corporate Strategy →
- 14 May 2009
- Working Paper Summaries
Quantity vs. Quality and Exclusion by Two-Sided Platforms
It is common for two-sided platforms to deny participation to some potential customers, who would otherwise be willing to pay the platforms' access and/or transaction fees. Videogame console manufacturers such as Microsoft, Sony, and Nintendo, for example, restrict access to a select set of game developers and exclude many others by including security chips in their consoles, even though the latter would also be willing to pay the per-game royalties levied by the manufacturers. Apple routinely excludes certain application developers from its highly popular iPhone store. Professor Andrei Hagiu builds a simple model formalizing profit-maximizing two-sided platforms' choice of exclusion policies, which is fundamentally determined by a tradeoff between quality and quantity. Key concepts include: A simple model captures the incentives that two-sided platforms have to exclude some participants who would be willing to pay the platform's access fees. Platforms' exclusion incentives are fundamentally determined by a tradeoff between quality and quantity. Closed for comment; 0 Comments.
- 07 May 2009
- Working Paper Summaries
Broadening Focus: Spillovers and the Benefits of Specialization in the Hospital Industry
What is the optimal scope of operations for firms? This question has particular relevance for the US hospital industry, because understanding the effects of focus and spillovers might help hospitals determine how they should balance focusing in a single clinical area with building expertise in related areas. While some scholars argue that narrowing an organization's set of activities improves its operational efficiency, others have noted that seemingly unfocused operations perform at a high level and that a broader range of activities may in fact increase firm value. This study by HBS doctoral student Jonathan Clark and professor Robert Huckman highlights the potential role of spillovers—specifically complementary spillovers—in generating benefits from focus at the operating unit level. Key concepts include: Hospitals devoting a greater portion of their business to treating patients in related service categories (i.e., those with the potential for knowledge spillovers) experience higher returns to specialization in a focal service. Ultimately, these results provide a potential explanation for why there might be decreasing returns to focusing an organization on a single operating activity (or narrow set of activities), especially when it is possible to invest in other activities that complement the organization's area of concentration. Closed for comment; 0 Comments.
- 03 Apr 2009
- Working Paper Summaries
Applying the Care Delivery Value Chain: HIV/AIDS Care in Resource Poor Settings
The prevention and treatment of a complex disease such as HIV/AIDS in resource‐poor settings presents enormous challenges. Many of the social and economic factors that make populations living in these settings vulnerable to HIV/AIDS such as poverty, malnutrition, and political instability conspire to create barriers to effective care delivery. Understanding how interventions are related to each other and how local socioeconomic factors influence them is critical to effective program design. The Care Delivery Value Chain (CDVC) looks at care as an overall system, not as a series of discrete interventions, and describes the activities required to deliver care, illustrating their sequence and organization. Government agencies, philanthropic organizations, and non‐governmental organizations can use the framework to improve HIV/AIDS care delivery. Key concepts include: The CDVC framework allows one to outline and analyze the process of care delivery for a medical condition and provide maximize value for patients. The CDVC framework can map the activities associated with HIV/AIDS care delivery in resource-poor settings to illuminate effective linkage and coordination. The CDVC framework allows synthesis of knowledge about the overall system of care delivery and provides a common language for improving it. Closed for comment; 0 Comments.
- 14 Nov 2008
- Working Paper Summaries
Parallel Search, Incentives and Problem Type: Revisiting the Competition and Innovation Link
The innovation process is fraught with uncertainty. Managers often do not know ahead of time the ideal mix of individuals and skills needed to solve innovation-related problems. One way around this uncertainty is to have multiple paths, approaches, or designs explored at once. The "parallel search" principle can be used inside the firm just as it may be used more generally by pursuing "open innovation". However, having too many searchers attempting to solve the same problem can undercut the benefits if it leads to less effort and investment. The authors study the outcomes of 645 software development contests, conducted by a software outsourcing vendor, involving over 9,000 coders, to understand the relationship between parallel search and increasing competition and innovation. Key concepts include: The key factor favoring parallel search, i.e. increasing the number of independent solvers, is the complexity of the problem at hand. The benefits of increased searchers were curtailed when the problems were simple, indicating that the negative consequences of competition matter most for simpler problems. Closed for comment; 0 Comments.
- 24 Oct 2008
- Working Paper Summaries
Platform Rules: Multi-Sided Platforms as Regulators
Using case studies of Facebook, Tokyo's Roppongi Hills "mini-city," Harvard Business School, and TopCoder, a vendor of outsourced software products, Boudreau and Hagiu explore how multi-sided platforms (MSPs) regulate an industry ecosystem. An MSP is a platform that enables interactions between multiple groups of surrounding consumers and complementors. As the authors demonstrate, the regulatory role played in these cases by MSPs was pervasive and at the core of their business models. That regulatory role goes beyond price-setting and includes imposing rules and constraints, creating inducements, and generally shaping behaviors. These various non-price instruments essentially solve problems that could otherwise lead to market failure. The authors' analytical framework suggests a two-step approach for a platform owner: (1) maximize value created for the entire ecosystem, and (2) maximize the value extracted. "Platform Rules" is a chapter in the forthcoming book Platforms, Markets and Innovation, Gawer, A. (ed) (2009), Cheltenham, UK and Northampton, MA, U.S.: Edward Elgar. Key concepts include: The scope of strategy for multi-sided platforms is significantly wider than for normal firms. It is not limited to pricing, product design, and technology, but also and critically includes control over interactions that do not happen at the firm's boundaries. There is a wide array of strategic instruments available to implement MSP regulation, including contractual, technological, and information design. The need for and consequences of MSP regulation may evolve over time. Closed for comment; 0 Comments.
- 20 Oct 2008
- Research & Ideas
The Seven Things That Surprise New CEOs
In the newly released book On Competition, Professor Michael E. Porter updates his classic articles on the competitive forces that shape strategy. We excerpt a portion on advice for new CEOs, written with HBS faculty Jay W. Lorsch and Nitin Nohria. Key concepts include: Most new chief executives are taken aback by unfamiliar new roles, time and information limitations, and altered professional relationships. The CEO must learn to manage organizational context rather than focus on daily operations. The CEO must not get totally absorbed in the role. Closed for comment; 0 Comments.
- 16 Oct 2008
- Working Paper Summaries
Opening Platforms: How, When and Why?
It is crucial for firms that create and maintain platforms to select optimal levels of openness. Decisions to open a platform entail tradeoffs between adoption and appropriability, and opening a platform can spur adoption by harnessing network effects, reducing users' concerns about lock-in, and stimulating production of differentiated goods that meet the needs of user segments. At the same time, opening a platform typically reduces users' switching costs and increases competition among platform providers, making it more difficult for them to appropriate rents from the platform. This paper describes research on factors that motivate managers to open or close mature platforms. Key concepts include: Absent careful definitions, it is not possible to make general statements about the attractiveness of open versus closed platform strategies. Platform openness occurs at multiple levels depending on whether participation is unrestricted at the demand-side user (end-user), supply-side user (application developer), platform provider, or platform sponsor levels. These distinctions in turn give rise to multiple strategies for managing openness. Forces tend to push both proprietary and shared platforms over time toward hybrid governance models typified by central control over platform technology and shared responsibility for serving users. Closed for comment; 0 Comments.
- 11 Sep 2008
- Working Paper Summaries
Competing Complements
Over the last two decades, an increasing number of industries have evolved from vertical integration to more horizontal structures where firms design and manufacture components that are later assembled by third parties for the final customer. In these horizontal industries, firms may be "complementors," rather than customers, suppliers, or competitors. Classic examples of complementors include Intel and Microsoft. Similar complementor relationships arise in industries such as communications, consumer electronics, automobiles, and health care. In these industries, complementor analysis may be as important as competitor analysis. The authors of this paper introduce competition into one side of complementor analysis, and suggest implications for managers, public policy, and the development of theory. Key concepts include: For managers, one way to persuade complementors to behave in ways beneficial to you is by promoting competition in their "spaces." However, if the competition that you can induce is mild, you are better off dealing with monopolist complements. From a public policy viewpoint, mild competition within complements might be preferable to intense competition. Moreover, duopolistic competition between complements might generate more total surplus than a triopoly. From a theoretical viewpoint, this paper is a first step toward a general theory of competition between and within complements. The paper adds to the literature on co-opetition initiated by Brandenburger and Nalebuff (1996). Closed for comment; 0 Comments.
- 11 Aug 2008
- Research & Ideas
Strategy Execution and the Balanced Scorecard
Companies often manage strategy in fits and starts, with strategy execution lost along the way. A new book by Balanced Scorecard creators Robert S. Kaplan and David P. Norton aims to make strategy a continual process. Key concepts include: An excellent strategy often fades from memory as the organization tackles day-to-day operations issues. The operational plan and budget should be driven from the revenue targets in the strategic plan. The senior management team needs to have regular, probably monthly, meetings that focus only on strategy. The Office of Strategy Management is a small cadre of professionals that orchestrate strategy management processes for the executive team. Closed for comment; 0 Comments.
- 23 Jul 2008
- Sharpening Your Skills
Sharpening Your Skills: Balanced Scorecard in Action
Introduced by Harvard Business School professor Robert Kaplan and colleague David Norton, the Balanced Scorecard has been used by thousands of organizations to align business activities with the strategy. Closed for comment; 0 Comments.
- 22 May 2008
- Working Paper Summaries
Testing Strategy with Multiple Performance Measures Evidence from a Balanced Scorecard at Store24
To what extent do balanced scorecards provide useful information for testing and validating an organization's strategy? Numerous case studies of balanced scorecard implementations document their use in translating organizational strategies to objectives and measures, communicating strategic objectives to employees, evaluating the performance of business units, and aligning the incentives of employees across business units and functions. There has been comparatively little research, however, on the potential learning and feedback role of balanced scorecards. Analyzing balanced scorecard data from Store24—a privately held convenience store retailer in New England—during the implementation of an innovative but ultimately unsuccessful strategy, this study investigates whether, when, and how information about problems with the firm's strategy was captured in the multiple performance measures of its balanced scorecard. Key concepts include: Store24's balanced scorecard contained useful and timely information for detecting problems in its strategy. The results also suggest that Store24 executives eventually learned about problems with the strategy despite a lack of reliance on such formal analysis. Analysis of the balanced scorecard could have yielded more timely information as well as more detail on why the strategy was not working as planned. Multiple measures in a balanced scorecard might systematically be used to test how well different drivers of performance are working to achieve strategic objectives and superior financial performance. Closed for comment; 0 Comments.
- 11 Mar 2008
- Working Paper Summaries
Finding Missing Markets (and a disturbing epilogue): Evidence from an Export Crop Adoption and Marketing Intervention in Kenya
Why do farmers continue to grow crops for local markets when crops for export markets are thought to be much more profitable? Answers may include missing information about the profitability of these crops, lack of access to the necessary capital to make the switch possible, lack of infrastructure necessary to bring the crops to export outlets, high risk of the export markets, lack of human capital necessary to adopt successfully a new agricultural technology, and misperception by researchers and policymakers about the true profit opportunities and risk of crops grown for export markets. Ashraf and colleagues conducted an experimental trial with DrumNet, a social enterprise of Pride Africa, a nongovernmental organization, to evaluate whether a package of services can help farmers adopt, finance, and market export crops, and thus earn more income. This experiment was motivated by a recent push in development to build sustainable interventions that help complete missing markets. Key concepts include: Researchers found positive but not overwhelming one-year impacts from DrumNet. DrumNet leads to more farmers growing export crops, increasing their production and lowering their marketing costs. While there was no statistically significant impact on income for the full sample of farmers, first-time growers of export-oriented crops experienced a statistically and economically significant increase in income. The epilogue to this project is more dismal. Due to DrumNet's lack of compliance with European export requirements, farmers were forced to undersell and thus default on their loans. The implication is that farmers may not be adopting export crops because of the risk of the export market. Closed for comment; 0 Comments.
- 06 Feb 2008
- Working Paper Summaries
On Best-Response Bidding in GSP Auctions
Keyword auctions have become a critical source of revenue for Google and Yahoo!, among others. This new form of advertising has provided a new way for advertisers to reach customers. But advertisers also face the complex task of optimizing bids to increase their exposure while avoiding unnecessary costs. HBS professor Benjamin Edelman and colleagues analyzed a class of bidding strategies that attempt to increase advertiser utility under limited assumptions about other players' behavior. Under a strategy they call Balanced Bidding (BB), advertisers converge to the advertiser-preferred equilibrium—achieving stability of bids and reducing advertisers' costs relative to other possible outcomes. Key concepts include: Sponsored search advertisers should consider others' responses when deciding how much to bid. If all players follow the BB strategy, it is possible to determine the expected time to convergence. Closed for comment; 0 Comments.
- 01 Feb 2008
- What Do You Think?
How Sustainable Is Sustainability in a For-Profit Organization?
Online forum now closed. For managers, sustainability can mean the integration and intersection of social, environmental, and economic responsibilities. The concept is admirable, says Jim Heskett, but does it also confuse managers entrusted with the bottom line? How should they make trade-offs? Jim sums up reader responses. Closed for comment; 0 Comments.
- 10 Jan 2008
- Sharpening Your Skills
- 22 Oct 2007
- Research & Ideas
Bringing ‘Lean’ Principles to Service Industries
Toyota and other top manufacturing companies have embraced, improved, and profited by lean production methods. But the payoffs have not been nearly as dramatic for service industries applying lean principles. HBS professor David Upton and doctoral student Bradley Staats look at the experience of Indian software services provider Wipro for answers. Key concepts include: In terms of operations and improvements, the service industries in general are a long way behind manufacturing. Not all lean manufacturing ideas translate from factory floor to office cubicle. A lean operating system alters the way a company learns through changes in problem solving, coordination through connections, and pathways and standardization. Successful lean operations at Wipro involved a small rollout, reducing hierarchies, continuous improvement, sharing mistakes, and specialized tools. Closed for comment; 0 Comments.
- 19 Sep 2007
- Working Paper Summaries
Strategic Interactions in Two-Sided Market Oligopolies
Strategic interactions and the logic of competitive advantage in 2-sided markets are fundamentally different than in traditional, 1-sided markets. For instance, an investment that decreases a firm's costs may increase the profits of its competitors and decrease the profits of the firm undertaking the investment. Such surprising effects arise because of the possibility that 2-sided platforms may end up subsidizing the participation of 1 side. There are also important implications for antitrust scholars: tying and other practices that may appear as harming competition in 1-sided markets can in fact benefit competitors in 2-sided markets. Key concepts include: If competing 2-sided platforms subsidize 1 side of the market, then a decrease in 1 of the 2 firms' costs may relax competition by making it less necessary for its competitor to subsidize. So, increasing competitive advantage through cost advantage for 1 platform may end up benefiting both platforms. In a 1-sided market, however, cost reductions by 1 firm always hurt rivals. Tying in a 2-sided market may cause no competitive harm to rivals. Closed for comment; 0 Comments.
- 07 Sep 2007
- Working Paper Summaries
Diversification of Chinese Companies: An International Comparison
Many observers have argued that Chinese managers are particularly quick to diversify their enterprises. Fueled by robust economic growth and the scant enforcement of intellectual property rights that could serve as barriers to entry, Chinese companies appear to be aggressively expanding into new industries whenever economic opportunities appear to beckon. There is much anecdotal evidence to support this view. But because the Chinese economy is extraordinarily large and dynamic, it is difficult to know whether anecdotes reflect an underlying trend toward greater diversification. This paper provides systematic evidence about the scope of Chinese companies, and compares the data with the evolution of firm scope in 8 other large economies. Key concepts include: This research shows no evidence that emerging-market companies are systematically more diversified than their developed-market counterparts. Contrary to some claims, the level of diversification of Chinese firms has remained stable over the past 5 years. In all other countries in the research sample, firms have become more focused over time. Chinese companies did not follow this trend. Chinese state-owned enterprises diversified their operations more aggressively than other Chinese firms. Closed for comment; 0 Comments.
- 04 Sep 2007
- Working Paper Summaries
Why Do Intermediaries Divert Search?
(Previously titled "Designing a Two-Sided Platform: When to Increase Search Costs?") Conventional wisdom holds that at the most fundamental level, market intermediaries exist in order to reduce search and transaction costs among the parties they serve and that they are more valuable the larger the cost savings they generate. This would seem to be true of both traditional, brick-and-mortar intermediaries (retailers, shopping malls, brokers, magazines, market exchanges) and "new economy" ones (Amazon, eBay, iTunes, Yahoo), all of which connect buyers and sellers of goods or services. However, many intermediaries, while providing the relevant information, seem at some stage of the process to do the opposite of reducing search costs—and by purposeful design rather than by accident. Retail stores, for instance, stack the products they carry so that the most sought-after items are hard to find and thereby induce consumers to walk along aisles carrying other products. This paper challenges the conventional wisdom that intermediaries create value by reducing search and transaction costs. It proposes a model that sheds light on the economic motivations that in some contexts may lead intermediaries to make it harder for the parties they serve—consumers and third-party sellers—to find each other. Key concepts include: This paper helps make sense of strategies employed by some intermediaries, which seem to purposefully make it hard for their consumers to find what they want: shopping malls, retail stores, popular magazines, and even Internet portals. When an intermediary derives higher revenues from consumers shopping at lesser-known stores relative to revenues from consumers shopping at more popular stores, it is more likely to degrade the quality of the search service offered to consumers. The intermediary may have an incentive to degrade the quality of search even further when its design decision influences the prices charged by stores. Closed for comment; 0 Comments.
Monopolistic Competition Between Differentiated Products With Demand For More Than One Variety
How and when is price competition most significant among firms? This paper develops a theoretical framework for studying price competition between multiple firms. Two examples of markets that fit the description for study are software applications and videogames: There are thousands of software applications as well as games, and different users are interested in different applications and/or games. A given software or game user's tastes may overlap with another's, yet they may have nothing in common with a third's. Thus, although there is a sense in which competition is localized (any given firm competes only with firms whose brands are similar to its own), it is not clear how the fact that consumers are generally interested in purchasing multiple products affects the type of competition waged among firms. Key concepts include: This paper proposes a theoretical framework for studying competition between differentiated products when consumers are interested in purchasing more than one brand. Closed for comment; 0 Comments.