- 27 Dec 2010
- Research & Ideas
HBS Faculty on 2010’s Biggest Business Developments
Three Harvard Business School professors—former Medtronic chairman and CEO Bill George, economist and entrepreneurship expert William Sahlman, and innovation and strategy authority Rosabeth Moss Kanter—offer their thoughts on the most significant business and economic developments of 2010. Key concepts include: Social networking is the most significant business development of 2010, says Bill George, noting that some 600 million people are now active on Facebook—and half of them spend at least an hour per day on the site. The problems of the Great Recession continued to dominate the economy in 2010, according to Bill Sahlman, who says that the popular media have grossly underestimated both the current deficit and level of debt in the United States. Rosabeth Kanter points out that new technology shined in 2010, in spite of the world's economic anxieties. She gives kudos to the Apple iPad, which accelerated the trend toward digital content. Closed for comment; 0 Comments.
- 21 Dec 2010
- First Look
First Look: December 21
Shrinking demand in the prison business … What we can learn from great negotiations … Why managers send redundant messages. Closed for comment; 0 Comments.
- 20 Dec 2010
- Research & Ideas
New Dean Sets Five Priorities for HBS
Harvard Business School's new Dean Nitin Nohria outlines five priorities that will shape the agenda for the School during his tenure: curriculum innovation, intellectual ambition, internationalization, inclusion, and closer ties to the University. Closed for comment; 0 Comments.
- 20 Dec 2010
- Research & Ideas
Panama Canal: Troubled History, Astounding Turnaround
In their new book, The Big Ditch, Harvard Business School professor Noel Maurer and economic historian Carlos Yu discuss the complicated history of the Panama Canal and its remarkable turnaround after Panama took control in 1999. Q&A with Maurer, plus book excerpt. Closed for comment; 0 Comments.
- 15 Dec 2010
- Working Paper Summaries
Cognitive Barriers to Environmental Action: Problems and Solutions
Researchers have long studied the cognitive barriers that cloud our thinking and decision-making. In a recent book chapter, HBS doctoral student Lisa L. Shu and professor Max H. Bazerman look at three barriers that can prevent clear decision-making, specifically on environmental issues. They also propose ways in which these biases could be put to advantage in promoting sound environmental policy and practice. Key concepts include: There are three cognitive barriers impeding sound individual decision making that have particular relevance to behaviors impacting the environment: people discount the future to a greater degree than can be rationally defended; positive illusions lead us to conclude that energy problems do not exist or are not severe enough to merit action; we interpret events in a self-serving manner, a tendency that causes us to expect others to do more than we do to solve energy problems. These biases can be used advantageously in directing humanity toward better judgment. For example: Because people tend to steer away from choosing and accept the default, companies should make presets on refrigerators, computer displays, and air conditioners environmentally friendly. Key questions remain on the research frontier from the behavioral decision-making perspective. It would be helpful to learn which behaviors leading to energy conservation are easiest to change. Although the behavioral decision-making perspective and the neoclassical economics perspective recommend very different solutions for the same problems, the two academic approaches do not have to be in opposition. Rather, the behavioral approach can actually be used to supercharge the incentive-compatible recommendations of the neoclassical approach. Closed for comment; 0 Comments.
- 14 Dec 2010
- Op-Ed
Tax US Companies to Spur Spending
With traditional monetary and fiscal policy instruments to stimulate the economy seemingly exhausted, professor Mihir Desai offers a radical proposal: Use taxes to motivate corporations to spend a trillion dollars in cash. Open for comment; 0 Comments.
- 14 Dec 2010
- First Look
First Look: Dec. 14
Case: The NFL's $720 million wireless deal with Verizon ... Diversification works as a hedge against economic meltdown ... The psychology behind strategic compensation. Closed for comment; 0 Comments.
- 14 Dec 2010
- Working Paper Summaries
Regulating for Legitimacy: Consumer Credit Access in France and America
Why have American households consistently borrowed so heavily? And why have their counterparts in France borrowed so little? This comparative historical analysis by HBS professor Gunnar Trumbull traces the roots of these different attitudes. In the United States, early welfare reformers embraced credit "on a business-like basis" as an alternative to expansive welfare states of the sort that were emerging in Europe. In France, early social planners saw consumer credit as a drain on savings that threatened to crowd out industrial investment. Regulatory regimes that emerged in the postwar period in the two countries reflected these different interpretations of the economic and social role of credit in society. Key concepts include: Market regulation has conventionally been justified in terms either of the public interest in correcting market failures or of the social welfare interest in restricting market functions. The case of consumer credit suggests that the historical context in which markets have been constructed as legitimate affects the way in which they are regulated. Americans have supported a liberal regulation of credit because they have been taught that access to credit promotes welfare. The French regulate credit tightly because they have come to see credit as both economically risky and a source of reduced purchasing power. These cases suggest that national differences in regulation may trace to historically contingent conditions under which markets are constructed as legitimate. Closed for comment; 0 Comments.
- 13 Dec 2010
- Research & Ideas
Managing the Support Staff Identity Crisis
Employees not connected directly to profit and loss can suffer from a collective "I-am-not-strategic" identity crisis. Professor Ranjay Gulati suggests that business managers allow so-called support function employees to become catalysts for change. Open for comment; 0 Comments.
- 09 Dec 2010
- Working Paper Summaries
Friends in High Places
Research supports the old adage that says it's not what you know; it's whom you know--especially when it comes to the voting behavior of US politicians. In a National Bureau of Economic Research working paper, Harvard Business School professors Lauren Cohen and Christopher Malloy study the congressional voting record from 1989 to 2008. They show that personal connections among Congress members reliably affect how they will vote on pending legislation. Key concepts include: US senators are more likely to vote in favor of bills when other senators who graduated from the same university also vote in favor of these bills. Social ties between Congress members and executives of firms in their home states have a direct impact on legislator behavior. Senate voting behavior also is affected by who sits near whom on the Senate chamber floor. Closed for comment; 0 Comments.
- 08 Dec 2010
- Working Paper Summaries
Decoding Inside Information
Price setters and regulators face a difficult challenge in trying to understand the stock trading activity of corporate insiders, especially when it comes to figuring out whether the activity is a good indicator of the firm's financial future. This National Bureau of Economic Research paper discusses how to distinguish "routine" trades (which predict virtually no information about a firm's financial future) from "opportunistic" trades (which contain a great deal of predictive power). Research was conducted by Harvard Business School professors Lauren Cohen and Christopher Malloy and Lukasz Pomorski of the University of Toronto. Key concepts include: Routine traders, whose trades make up some 55 percent of insider trades (over half of the universe), are those with a pattern of placing a trade in the same calendar month for at least a few years in a row. Opportunistic traders are those insiders for whom there is no discernible pattern in the past timing of their trades. Focusing solely on opportunistic trading activity allows analysts to weed out useless signals and identify those trades that will likely predict future firm returns and events. More than half of the improvement in this predictive power comes from the superior performance of opportunistic sells relative to routine sells. Closed for comment; 0 Comments.
- 07 Dec 2010
- First Look
First Look: Dec. 7
Bacon ice-cream vacations …The roller-coaster ride of Plavix … Chicken or egg? Closed for comment; 0 Comments.
- 07 Dec 2010
- Working Paper Summaries
Towards an Understanding of the Role of Standard Setters in Standard Setting
Accounting standards promulgated by the Financial Accounting Standards Board (FASB) play an important role in the development and maintenance of capital markets worldwide, so it is important to understand how these standards come to be. Prior research has focused on the effect of corporate lobbying on the development of FASB standards, but has largely overlooked the role of the FASB members themselves. Looking at these individuals between 1973 and 2007, Harvard Business School doctoral candidate Abigail M. Allen and professor Karthik Ramanna examine how board members' professional experience, length of service on the board, and political leanings influenced accounting standards. Key concepts include: While corporate lobbying is likely to influence the nature of accounting standards proposed by the FASB, the board members themselves are likely to shape Generally Accepted Accounting Principles (GAAP) by controlling which standards are proposed. Length of service on the board is associated with proposing standards perceived both as more favorable by big auditors and as decreasing accounting "reliability." Affiliation with the Democratic Party, measured by political donations, is associated with proposing standards perceived both as less favorable by big auditors and as increasing accounting reliability. The evidence in this study can be used toward building a more comprehensive theory of accounting standard setting, which can be helpful in informing future efforts at designing standard setting institutions, including considerations on term limits and prior work experience. Closed for comment; 0 Comments.
- 06 Dec 2010
- Sharpening Your Skills
Sharpening Your Skills: Doing Business in Emerging Markets
Going global is one thing, targeting emerging economies quite another. In this collection from our archives, HBS faculty discuss strategy development, government relations, exploiting local opportunities, and risk management when dealing in emerging economies. Closed for comment; 0 Comments.
- 03 Dec 2010
- Working Paper Summaries
Creating Leaders: An Ontological Model
HBS professor emeritus Michael C. Jensen and coauthors have created an ontological approach to creating leaders in which leadership emerges through spontaneous and intuitive natural self-expression. Key concepts include: The ontological model of leader and leadership opens up and reveals the actual nature of being when one is being a leader. It also opens up and reveals the source of one's actions when exercising leadership. Ontology's associated phenomenological methodology provides actionable access to what has been opened up. Students do not need to study ontology or phenomenology. Closed for comment; 0 Comments.
- 02 Dec 2010
- What Do You Think?
Making Right Choices: Art or Science?
Summing Up Is choice an art or science? Jim Heskett's readers wonder whether the question is the right one to ask. (Online forum has closed; next forum opens January 6.) Closed for comment; 0 Comments.
- 01 Dec 2010
- Working Paper Summaries
Reversing the Null: Regulation, Deregulation, and the Power of Ideas
Who's to blame for the recent financial crisis? To some extent, the fault lies with scholars of economics, according to professor David Moss. In this paper, he argues that an academic focus on government failure in the second half of the 20th century led to the general idea that less was always more when it came to regulation--which, in part, contributed to the crisis. To that end, he calls for a fundamental shift in academic research on the government's role in the economy. Key concepts include: By shifting their focus from market failure to government failure, late-20th-century scholars of economics helped create the impression that government can't get anything right. This helped set the stage for a widespread deregulatory mindset. This mindset was important in helping to eliminate unnecessary regulation, but it also hampered the creation of vital new regulation--including regulation of the largest and most "systemically significant" financial institutions--that might have prevented the financial crisis in the first place. The existing null, that government is perfect, has prompted a great deal of work on government failure. Now, Moss suggests, it's time for scholars to try to gain a deeper understanding of when government succeeds and under what conditions. How can well-known sources of government failure, such as regulatory capture, be prevented or minimized? To get there, he says, scholars need to adopt a new null hypothesis--namely, that government always fails. As scholars go about trying to reject that null, they are likely to generate valuable new research on government and regulation, including what works, what doesn't, and why. Closed for comment; 0 Comments.
- 30 Nov 2010
- Working Paper Summaries
Sponsored Links’ or ’Advertisements’?: Measuring Labeling Alternatives in Internet Search Engines
In processing a search for a particular phrase, Internet search engines generally offer two types of results: the algorithmic results, which a search engine selects based on relevance, and the "sponsored links," for which advertisers pay. The latter often occupy prominent screen space. But does the average web surfer realize that they are advertisements? In an online experiment, Harvard Business School professor Benjamin Edelman and doctoral candidate Duncan S. Gilchrist show that "sponsored link" is too vague a term for some users to understand, and that "paid advertisement" is a label that better clarifies the nature of the link. They call on the FTC to compel search engines to improve their disclosures. Key concepts include: Through October 2010, leading search engines Google, Yahoo!, and Bing presented their advertisements with the labels "sponsored links," "sponsored results," and "sponsored sites," respectively. (In November, Google substituted the term "ads.") In an online experiment that replaced these labels with the term "paid advertisement," users were up to 33 percent less likely to click on the sponsored link. Certain categories of users were particularly influenced by the improved label. The improved labels had largest effect on users without college degrees, users with annual income below $100,000, and users who utilize the web less than 12 hours per week. The Federal Trade Commission has called for "clear and conspicuous disclosures" to label search advertisements. Because available evidence suggests users do not understand widely used labels, the researchers believe the FTC should require search engines to use the label "advertisement" or "paid advertisement" rather than vague or easily overlooked alternatives. Closed for comment; 0 Comments.
- 30 Nov 2010
- Working Paper Summaries
The New Face of Chinese Industrial Policy: Making Sense of Anti-Dumping Cases in the Petrochemical and Steel Industry
The researchers set out to explain differences in China's antidumping actions against importers in the petrochemical and steel industries. During the study period, 66 percent of the country's antidumping cases targeted petrochemical imports, while steel imports were targeted only in 5 percent of the cases. Why did China's petrochemical and steel industries behave so differently in seeking trade protection? The answers put forward by researchers Regina Abrami (Harvard Business School) and Yu Zheng (University of Connecticut) point toward the structural nature of the industries themselves, and against arguments that antidumping actions in China have been driven by retaliation or national industrial strategy alone. Key concepts include: Existing patterns of antidumping investigations in China mainly reflect how firms may respond to economic challenges in the context of structural constraints. Rather than serving as a defense against global competition, strong local interests in China seem to be facilitating it. They do so by getting in the way of the kinds of industrial consolidations that seem necessary to wage successful battles through antidumping mechanisms. The research does not dismiss a role for economic or political interests as motivating factors, but does suggest that in their own right they cannot explain fully the patterns that exist. The research demonstrates that domestic business interest groups can influence state policy outcomes in China; that their ability to do so is closely related to resolution of collective action problems; and that Chinese industrial strategy is a far less coordinated political outcome than the increasingly popular idea of "China Inc." suggests. Closed for comment; 0 Comments.
The Psychological Costs of Pay-for-Performance: Implications for Strategic Compensation
In studying pay-for-performance-based compensation systems, economic scholars often adhere to agency theory, which hypothesizes that firms should prominently use performance-based compensation—it alleviates the problems of employee "shirking" and ensures highly skilled employees' desire to work for the company. However, firms use performance-based pay far less frequently than agency theory predicts. This paper posits that the psychological costs of pay-for-performance systems often dominate their benefits to firms, and proposes an integrated theory of strategic compensation that takes into account the economic and psychological benefits and costs of pay-for-performance. Research was conducted by Harvard Business School professors Francesca Gino and Ian Larkin, and Lamar Pierce of Washington University. Key concepts include: Three psychological factors most prominently influence compensation strategy: social comparison processes, overconfidence, and loss aversion on the part of employees. Social comparison processes imply that employees care not only about their own pay but also about the pay of relevant others. If employees are overconfident about their abilities, which is often the case, they may become unmotivated or even engage in sabotage if they perceive unfair pay gaps between their and others' pay. Loss-averse employees are more motivated by potential failure to meet sometimes arbitrary levels of desired pay than they are by potential gains. This phenomenon implies that employees may work less hard than firms desire even if paid for performance. In response to these psychological factors, firms rely on flat salaries or "scale-based" systems where the pay-for-performance relationship is much less prominent than predicted by agency theory. Closed for comment; 0 Comments.