- 31 Aug 2007
- Working Paper Summaries
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). Key concepts include: The key is control rights over factors such as content pricing and cash flow. Strategic interactions around control rights between platforms and the content provider can push the industry structure in either direction. High-quality content will multihome, because foreclosing a portion of the market by being exclusive will be too costly. Mid-quality content will be exclusive and can soften price competition at the platform level enough to offset the losses from excluding a portion of the market. Low-quality content will multihome, since it would not yield any comparative advantage if it were exclusive. A platform that has exclusive rights to content may prefer to relinquish control over pricing and associated revenues to the content provider in order to relax price competition with a rival platform. Closed for comment; 0 Comments.
- 31 Aug 2007
- Working Paper Summaries
Innovation through Global Collaboration: A New Source of Competitive Advantage
Collaboration is becoming a new and important source of competitive advantage. No longer is the creation and pursuit of new ideas the bastion of large, central R&D departments within vertically integrated organizations. Instead, innovations are increasingly brought to the market by networks of firms, selected according to their comparative advantages, and operating in a coordinated manner. This paper reports on a study of the strategies and practices used by firms that achieve greater success in terms of business value in their collaborative innovation efforts. Key concepts include: Consider the strategic role of collaboration, organize effectively for collaboration, and make long-term investments to develop collaborative capabilities. Successful firms found that attention to these 3 critical areas generated new options to create value that competitors could not replicate. Successful firms went beyond simple wage arbitrage, asking global partners to contribute knowledge and skills to projects, with a focus on improving their top line. They redesigned their organizations to increase the effectiveness of these efforts. Managing collaboration the same way a firm handles the outsourcing of production is a flawed approach. Production and innovation are fundamentally different activities and have different objectives. Closed for comment; 0 Comments.
- 28 Aug 2007
- First Look
- 27 Aug 2007
- Op-Ed
Mattel: Getting a Toy Recall Right
Mattel has been criticized heavily for having to recall not once but twice in as many weeks 20 million toys manufactured in China. But Mattel also deserves praise for stepping up to its responsibilities as the leading brand in the toy industry. Harvard Business School professor John Quelch examines what Mattel did right. Key concepts include: Mattel's recall of 20 million toys made in China was handled deftly: The CEO took personal charge of the problem. Consumers are being empowered by Mattel's communications. The recall Web site is a model of excellence. Mattel's compensation program to customers may not be sufficient. Closed for comment; 0 Comments.
- 22 Aug 2007
- Research & Ideas
The Hedge Fund as Activist
Do hedge funds improve management of the companies they invest in? A new study by Harvard Business School professor Robin Greenwood and coauthor Michael Schor argues that, in fact, hedge funds create shareholder value through anticipation of change, not necessarily delivering it. Key concepts include: Hedge funds have entered the activist arena. Between 1994 and 2006, the number of public firms targeted for poor performance by hedge funds grew more than 10-fold. Hedge funds generate returns of over 5 percent on announcement of their involvement with a targeted firm. Rather than effecting significant operational change, hedge funds create value by putting firms "in play." A question for future study: Do hedge fund activist-initiated acquisitions create value for the acquirers of these firms? Closed for comment; 0 Comments.
- 21 Aug 2007
- First Look
- 20 Aug 2007
- Working Paper Summaries
Hedge Fund Investor Activism and Takeovers
Are hedge funds better than large institutional investors at identifying undervalued companies, locating potential acquirers for them, and removing opposition to a takeover? Are they best equipped to monitor management? While blockholding by large institutional investors—pension funds and mutual fund investment companies—is widespread, there is virtually no evidence that these institutional shareholders are effective monitors of management or that their presence in the capital structure increases firm value. When institutional blockholders make formal demands on management, there is no evidence of their success. This working paper outlines the advantages and limits of hedge funds to manage these tasks. Greenwood and Schor's characterization differs markedly from previous work on investor activism, which tends to attribute high announcement returns to improvements in operational performance. Key concepts include: While recent popular accounts suggest that we are in an era of the "imperial shareholder," the results in this working paper indicate that activism tends to be most successful when there is a high probability of a takeover. Where improvements may take several quarters or even years to realize, the investment horizon of hedge funds makes them unsuitable overseers of management. Firms that would benefit from modest changes in operating policy or governance, or for which a reduction in CEO pay is to be desired, are not likely to hit the radar screen of hedge funds. While hedge funds do occasionally succeed in changing the board, initiating or increasing dividends, repurchasing shares, or cutting executive pay, it is not clear that these changes increase shareholder value relative to getting the target acquired. Closed for comment; 0 Comments.
- 20 Aug 2007
- Research & Ideas
HBS Cases: Using Investor Relations Proactively
Investor relations has a delicate balancing act. It communicates with stakeholders, of course, but can also help employees take a step back and analyze their firm as outsiders do. Harvard Business School's Gregory S. Miller, Vincent Dessain, and Daniela Beyersdorfer explain where IR is going, with energy giants BP and Total leading the way. Key concepts include: Good news for stockholders can be bad news for other stakeholders. IR should be consistent and proactive on all fronts. Investors increasingly care about geopolitics, the environment, and social responsibility; financial communication will need to factor this in. Develop IR in a way consistent with your firm's unique operating position. Outside information is important, but the extent to which it should influence a firm's decision-making is an open question. Closed for comment; 0 Comments.
- 15 Aug 2007
- Op-Ed
3 Steps to Reduce Financial System Risk
By using complex derivative products, banks are better able to manage risk. But this "credit risk transfer" technology is transferring risk to a new set of investors inexperienced in this arena and posing exposure problems for the international financial system as a whole, argues Harvard Business School professor Mohamed El-Erian. Here's how to fix the problem. Key concepts include: Regulatory authorities must address 2 challenges to contain a new source of systemic risk in international finance: the increasing migration of complex market activities to unqualified supervisory bodies, and the growing threat of politically motivated changes to regulatory regimes. If left unchecked, systemic risk in the international financial system will increase and much of the initial beneficial impact of credit risk transfer technology may be negated. 3 steps can mitigate this new component of systemic risk: greater cooperation among supervisory bodies; encouragement of rating agencies to improve their modeling of derivative products; and inducement of new investors to evaluate the ratings issued by the agencies against improved internal risk management capabilities. Closed for comment; 0 Comments.
- 14 Aug 2007
- First Look
- 14 Aug 2007
- Working Paper Summaries
Improving Patient Outcomes: The Effects of Staff Participation and Collaboration in Healthcare Delivery
Health-care organizations have a well-documented, industry-wide need to improve their processes. To that aim, the Institute of Medicine has made at least 2 recommendations that focus on front-line staff—physicians, nurses, and respiratory therapists. The first recommendation states that front-line staff should be involved in unit decision-making and the design of work processes and workflow (participation). The second emphasizes respectful interactions among front-line staff, including information-sharing and coordinating activities to achieve organizational goals (collaboration). This study provides preliminary supporting evidence for the Institute of Medicine's recommendations to use a dual, front-line strategy of participation and collaboration to improve patient outcomes. Key concepts include: Shared decision-making and respectful collaboration are vital to enabling improvement in health-care organizations. Front-line staff participation in process improvement can solve a common problem: lack of commitment from health-care professionals to implement new practices. Units with more collaboration—as measured by staff perception and use of collaborative work practices—experienced greater improvement in risk-adjusted mortality among patients. Participation in process improvement may be an effective strategy for other service organizations that face staff resistance to new routines. Closed for comment; 0 Comments.
- 13 Aug 2007
- Research & Ideas
The Dark Side of Trust
It has been well documented that strong trust between a buyer and supplier provides many advantages, such as increased productivity. But according to new research coauthored by HBS professor Felix Oberholzer-Gee, trusting relationships can also have a negative side that managers must take into account. Key concepts include: Many scholars agree that trust between suppliers and buyers generates significant benefits including motivating better performance and reducing negotiation time. Breaking apart a trusted buyer-supplier relationship can be a significant barrier to entry for competitors. The negative side of trust is that it can blind you to opportunities that arise outside established relationships. Closed for comment; 0 Comments.
- 13 Aug 2007
- Working Paper Summaries
Diasporas and Domestic Entrepreneurs: Evidence from the Indian Software Industry
Several recent studies have highlighted the important role that cross-border ethnic networks might play in facilitating entrepreneurship in developing countries. Little is known, however, about the extent to which domestic entrepreneurs rely on the diaspora and whether this varies systematically by the characteristics of the entrepreneurs or their local business environment. The Indian diaspora is estimated at over 18 million people spanning 130 countries. Given that formal institutions in India remain weak and hence the informal barriers to trade are higher, do diaspora networks serve as substitutes to the functioning of the local business environment? Do they help entrepreneurs to circumvent the barriers to trade arising from imperfect institutions? This study examines the extent to which software entrepreneurs within India vary in their reliance on expatriate networks. Key concepts include: Entrepreneurs located outside software hubs—in cities where monitoring and information flow on prospective clients is harder—rely significantly more on diaspora networks for business leads and financing. Those who rely more on diaspora networks also have better performing firms. This benefit from the diaspora is stronger for entrepreneurs who are based outside hubs. Benefits from the diaspora accrue most to entrepreneurs who have previously lived abroad and returned to India, compared with those who have not lived abroad. Professional rather than ethnic ties may well form the basis for these networks. Policymakers in developing countries could leverage their diasporas to help with domestic entrepreneurship by developing links between the diaspora and smaller cities rather than with hubs. Closed for comment; 0 Comments.
- 07 Aug 2007
- First Look
- 06 Aug 2007
- Research & Ideas
High Hills, Deep Poverty: Explaining Civil War in Nepal
Nepal, the home of Mount Everest, has been gripped in recent years by civil war. A new paper by Harvard Business School professor Lakshmi Iyer and Quy-Toan Do of the World Bank looked at the roots of Nepal's conflict from a variety of angles. For the future, investing in poverty reduction strategies is a key for peace, Iyer says. Key concepts include: Nepal went through a dozen different governments in 12 years beginning in 1991. Diversity could be a contributing factor to civil wars, and Nepal is tremendously diverse—ethnically, economically, and geographically. Geographic diversity and poverty were the greatest predictors of violence in Nepal. The root cause of Nepal's civil war was economic, not social. Investments in poverty reduction strategies bring direct economic as well as political benefits to countries like Nepal. Closed for comment; 0 Comments.
- 02 Aug 2007
- What Do You Think?
How Will Millennials Manage?
Gen Yers or "millennials"—those born beginning in the late 1970s—are generally bright, cheery, seemingly well-adjusted, and cooperative, says Jim Heskett. Their work styles are sometimes confounding, though. As managers, how will they shape organizations of the future? Online forum now closed. Closed for comment; 0 Comments.
- 01 Aug 2007
- Op-Ed
Company Town: Fixing Corrupt Governments
Too many democracies are ruled by corrupt leaders, says HBS professor Eric Werker. So how about letting good corporate citizens run for elected office in Third World regions? Key concepts include: Corporations should be allowed to run for office in corrupt Third World governments. Companies and nonprofits have stronger incentives than do individuals to steer clear of bribes and kickbacks. Voters might look favorably on a foreign "mayor" because it might be viewed as the only credible option to escape the corruption rut, and their taxes would fund good government. Closed for comment; 0 Comments.
- 31 Jul 2007
- First Look
- 30 Jul 2007
- Research & Ideas
Repugnant Markets and How They Get That Way
Repugnance is different in different places and at different times, says Harvard economist Alvin E. Roth in this Q&A. As someone who designs and builds new markets, he marvels at how society decides whether a transaction is "good" or "bad"—even when such transactions are very much alike. Key concepts include: "Repugnant transactions" are transactions that some people don't want other people to engage in. From the point of view of economists, the phenomenon of repugnant transactions can be a serious constraint on markets and market design. When a market is illegal, the versions of it that arise can be quite dangerous. It is difficult to compare how markets operate when they're illegal with what it would be like if they could operate legally. Closed for comment; 0 Comments.
Jumpstarting Innovation: Using Disruption to Your Advantage
Fostering innovation in a mature company can often seem like a swim upstream—the needs of the existing business often overwhelm attempts to create something new. Harvard Business School professor Lynda M. Applegate shows how one of the forces that threatens established companies can also be a source of salvation: disruptive change. Plus: Innovation worksheets. Key concepts include: Jumpstarting innovation is a critical business imperative. Executives realize that radical change is needed but do not feel equipped to make such change. Disruptions in the business environment allow new entrants or forward-thinking established players to introduce innovations that transform the way companies do business and consumers behave. Disruptive changes that might serve as the source of innovation include technology shifts, new business models, industry dynamics, global opportunities, and regulatory changes. Closed for comment; 0 Comments.