- 25 Nov 2009
- Working Paper Summaries
The Devil Wears Prada? Effects of Exposure to Luxury Goods on Cognition and Decision Making
Gandhi once wrote that "a certain degree of physical harmony and comfort is necessary, but above a certain level it becomes a hindrance instead of a help." This observation raises interesting questions for psychologists regarding the effects of luxury. What psychological consequences do luxury goods have on people? In this paper, the authors argue that luxury goods can activate the concept of self-interest and affect subsequent cognition. The argument involves two key premises: Luxury is intrinsically linked to self-interest, and exposure to luxury can activate related mental representations affecting cognition and decision-making. Two experiments showed that exposure to luxury led people to think more about themselves than others. Key concepts include: Luxury does not necessarily induce people to be "nasty" toward others but rather causes them to be less concerned about or considerate toward others. Experiment 1 showed that when primed with luxury, people are more likely to endorse self-interested business decisions (profit maximization), even at the expense of others. Experiment 2 further demonstrated that exposure to luxury is likely to activate self-interest but not the tendency to harm others. Exposure to luxury goods may activate a social norm that it is appropriate to pursue interests beyond a basic comfort level, even at the expense of others. It may be this activated social norm that affects people's judgment and decision-making. Alternatively, exposure to luxury may directly increase people's personal desire, causing them to focus on their own benefits such as prioritizing profits over social responsibilities. Closed for comment; 0 Comments.
- 24 Nov 2009
- First Look
First Look: Nov. 24
New faculty research: Learning from the world's tiniest businesses ... How communication can change the nature of bargaining ... Case: "Choosing a GAAP for Canada." Closed for comment; 0 Comments.
- 24 Nov 2009
- Working Paper Summaries
From Strategy to Business Models and to Tactics
Drivers such as globalization, deregulation, or technological change, just to mention a few, are profoundly changing the competitive game. Scholars and practitioners agree that the fastest-growing firms in this new environment appear to have taken advantage of these structural changes to compete "differently" and innovate in their business models. However, there is not yet agreement on what are the distinctive features of superior business models. This dispute may have arisen, in part, because of a lack of a clear distinction between the notions of strategy, business model, and tactics. HBS professor Ramon Casadesus-Masanell and Joan Enric Ricart present an integrative framework to distinguish and relate the concepts of business model, strategy, and tactics. Key concepts include: An integrative framework that cleanly separates the realm of business model, strategy, and tactics will help guide the search for novel, interesting, and profitable new ways to compete. "Business model" refers to the logic of the firm, the way it operates, and how it creates value for its stakeholders. "Strategy" refers to the choice of business model through which the firm will compete in the marketplace. "Tactics" refers to the residual choices open to a firm by virtue of the business model that it employs. Closed for comment; 0 Comments.
- 23 Nov 2009
- Research & Ideas
Management’s Role in Reforming Health Care
Health care managers are the missing link in debate over reform. Their skills and ideas are needed to sustain and improve upon multiple advances in the delivery of health care for the benefit of patients. An interview with HBS professor Richard M.J. Bohmer, MD, and an excerpt from his book Designing Care: Aligning the Nature and Management of Health Care. Key concepts include: Many health-care delivery issues are managerial rather than policy issues. Much debate on the U.S. stage assumes the current health-care delivery system is a given. Yet innovations in care delivery could potentially help patients and the U.S. health-care system overall. Bohmer's book explains how to create more knowledgeable, flexible, and responsive delivery organizations. Routine medical practice is a fertile source of innovations in care, in both what to do and how to do it. Closed for comment; 0 Comments.
- 19 Nov 2009
- Working Paper Summaries
Management and the Financial Crisis (We Have Met the Enemy and He is Us …)
We have spent the past year mired in a global financial crisis that few saw coming and that will plague us for years to come. Such crises are gut-wrenching. Collectively and individually, we search for causes and solutions. Too often, we look for quick fixes that do long‐term damage, or we put the equivalent of duct tape on obvious problems, missing the true root causes. HBS professor William A. Sahlman argues that the macroeconomic problems were the result of terrible microeconomic decisions. The root cause of bad decision‐making resides in the nexus of culture, incentives, control and measurement, accounting, and human capital. We now have a unique opportunity to force a review of all the players in the financial system, from individual consumers to politicians and regulators to management teams at financial services firms. Key concepts include: Management needs a new kind of comprehensive analysis monitor. The new entity would take an objective, hard‐nosed look at major financial services firms on a holistic basis. The new monitor would learn from working with many players in an industry. Auditing the best and worst firms would create powerful tools for improving practice. Beyond introducing this new player to the broad system of corporate governance, the most important and most difficult changes are those required of managers, who must look hard at risk and reward. Closed for comment; 0 Comments.
- 18 Nov 2009
- Working Paper Summaries
India Transformed? Insights from the Firm Level 1988-2005
Between 1986 and 2005, Indian growth put to rest the concern that there was something about the "nature of India" that made rapid growth difficult. Following broad-ranging reforms in the mid-1980s and early 1990s, the state deregulated entry, both domestic and foreign, in many industries, and also hugely reduced barriers to trade. Laura Alfaro of Harvard Business School and Anusha Chari of the University of North Carolina at Chapel Hill analyze the evolution of India's industrial structure at the firm level following the reforms. Despite the substantial increase in the number of private and foreign firms, the overall pattern that emerges is one of continued incumbent dominance in terms of assets, sales, and profits in both state-owned and traditional private firms. Key concepts include: In sectors dominated by state-owned and traditional private firms before liberalization (with assets, sales, and profits representing 50 percent or higher shares), these firms remain the dominant ownership group following the reforms. Rates of return remain stable over time and show low dispersion across sectors and across ownership groups within sectors. The high levels of state ownership and ownership by traditional private firms in India raise the question of whether existing resources could be allocated more efficiently and whether remaining barriers to competition jeopardize the effectiveness of reform measures that have been put in place. Closed for comment; 0 Comments.
- 18 Nov 2009
- HBS Case
Customer Feedback Not on elBulli’s Menu
The world is beating a path to Chef Ferran Adrià's door at elBulli, but why? In professor Michael Norton's course, students learn about marketing from a business owner who says he doesn't care whether or not customers like his product. Closed for comment; 0 Comments.
- 17 Nov 2009
- First Look
First Look: Nov. 17
Fixing management excess … The changing U.S. economic relationship with China and what it means … Case: "Genzyme Center." Closed for comment; 0 Comments.
- 16 Nov 2009
- Research & Ideas
The Times Captures History of American Business
"We are not the first to face what seem like overwhelming challenges," says HBS professor and business historian Nancy F. Koehn. A new volume edited and narrated by Koehn, The Story of American Business: From the Pages of The New York Times, presents more than a hundred timely articles from the 1850s to today. Q&A and book excerpt. Key concepts include: If business leaders are to make sense of the financial crisis and its larger significance, they must have access to both depth and breadth in what they read. Big themes of The Story of American Business include Wall Street, leadership, consumption, the workplace, communications, and transportation. Koehn's narrations distill biography and social, economic, cultural, and business history from the 1850s to today. Closed for comment; 0 Comments.
- 12 Nov 2009
- Working Paper Summaries
Walking Through Jelly: Language Proficiency, Emotions, and Disrupted Collaboration in Global Work
As organizations increasingly globalize, individuals are required to collaborate with coworkers across international borders. Many organizations are mandating English as the lingua franca, or common language, regardless of the location of their headquarters, to facilitate collaboration across national and linguistic boundaries. What is the emotional impact of lingua franca adoption on native and nonnative speakers who work closely together and often across national boundaries? This study examines the communication experience for native and nonnative English speakers in an organization that mandates English as the lingua franca for everyday use, and the impact of the lingua franca on collaboration among globally distributed coworkers. HBS professor Tsedal Neeley and coauthors describe in detail how emotions and actions were intertwined and evolved recursively as coworkers attempted to release themselves from unwanted negative emotions and inadvertently acted in ways that transferred negative experiences to their distant coworkers. Their findings have implications for managers who are charged with overseeing internationally distributed projects. Key concepts include: Disparities in English language proficiency were a major challenge for workers in the study. These disparities not only disrupted information sharing, they often triggered a cycle of negative emotional responses that interfered with collaborative relationships on the teams. It is important that workers engage in perspective taking with the goal of understanding the experiences and constraints of their colleagues. Building awareness of the experiences of coworkers with different language backgrounds and proficiencies and empathizing with those experiences can circumvent the negative cycle. Closed for comment; 0 Comments.
- 10 Nov 2009
- First Look
First Look: Nov. 10
Improve financial literacy with video games … Unbundling digital music and the effect on revenues … Case: "HurryDate." Closed for comment; 0 Comments.
- 10 Nov 2009
- Working Paper Summaries
Endowments, Fiscal Federalism, and the Cost of Capital for States: Evidence from Brazil, 1891-1930
Do endowments matter in determining the cost of capital for a country or state? Endowments, according to Banco de México's André C. Martínez Fritscher and HBS professor Aldo Musacchio, are the conditions that determine what kind of commodities can be produced and exported in a determined geographical region. Studying the determinants of the risk premium of the bonds issued by Brazilian states between 1891 and 1930—a period of extreme decentralization of fiscal revenues and expenditures in Brazil—the researchers find that risk premia are highly correlated with state public revenue per capita. Because these revenues came, to a large extent, from the taxes states levied on commodity exports, the researchers argue that endowments mattered to determine the cost of capital for states. Key concepts include: Between 1891 and 1930, the cost of capital for Brazilian states and the probability of issuing state debt in international capital markets were highly correlated with state revenues per capita. The relationship among endowments and the cost of capital for states or the capacity to issue debt may have led to marked differences in access to capital and in the capacity that states had to spend on public goods. Since differences in expenditures on public goods can lead to market differences in economic development among states, the setup of the 1891 Constitution promoted some of the regional inequality that is still observed today in Brazil. Closed for comment; 0 Comments.
- 09 Nov 2009
- Research & Ideas
Come Fly with Me: A History of Airline Leadership
A new book looks at the history of the U.S. aviation industry through the eyes of its entrepreneurs, managers, and leaders—men like Pan Am's Juan Trippe and Southwest Airlines' Herb Kelleher—each emerging at different stages of the industry's evolution from start-up to rebirth. Who comes next? An interview with coauthor Anthony J. Mayo. Key concepts include: While disruptive forces can change an industry, so too can leaders themselves by the manner in which they run their enterprises. Different archetypes of leaders emerged as the U.S. airline industry evolved from start-up phase through deregulation and the shock of September 11, 2001. Airlines seem ripe for a new form of leadership to reenergize the industry. Closed for comment; 0 Comments.
- 05 Nov 2009
- Research & Ideas
A Market for Human Cadavers in All but Name?
A shortage of cadavers has hampered medical education and training, a market that entrepreneurs are stepping forward to address. HBS professor Michel Anteby argues that scholars must learn more about the market dynamics of this uncomfortable subject in order to inform political debate. Closed for comment; 0 Comments.
- 05 Nov 2009
- Working Paper Summaries
Medium Term Business Cycles in Developing Countries
At the end of 2007, the U.S. economy entered a recession that, by the first quarter of 2009, had reduced U.S. GDP by 2.2 percent. The Mexican economy was showing no sign of distress until the U.S. recession began. Despite that, Mexican GDP declined by 7.8 percent during the same period. This and similar episodes from other developing countries motivate several questions: Why do shocks to developed economies affect developing countries to such an extent? Does the response of developing economies to shocks that originate in their developed neighbors account for the larger volatility of developing economies? More broadly, what ingredients do macroeconomic models need to incorporate in order to account for the unique features of economic fluctuations in developing economies? To investigate these questions, the researchers developed a two-country asymmetric model to study the business cycle in developing countries. The mechanisms introduced in the model should provide an accurate account of business cycles in other developing countries. Key concepts include: First, U.S. shocks have a larger effect on GDP in Mexico than in the United States. This result is driven by the larger amplitude of fluctuations in Mexican productivity and by the subsequent effects on investment. This finding has important implications for the sources of Mexican volatility. Second, the slow diffusion of technologies to Mexico results in U.S. shocks having more persistent effects on Mexico than in the United States. This result explains the observed lead of U.S. GDP over the medium-term component of Mexican output and the relative price of capital. Third, consumption is no less volatile than output in Mexico. The researchers' model accounts for this stylized fact because a Mexican recession slows down the diffusion of technologies to Mexico, generating a gradual increase in the price of installed capital. As a result, Mexican interest rates increase despite the lower marginal product of capital, and consumption drops precipitously. Closed for comment; 0 Comments.
- 04 Nov 2009
- What Do You Think?
What is the Role of Government Vis-à-Vis Capitalism?
The debate this month boiled down to the extent of government's role in relation to capitalism, says professor Jim Heskett. While some readers argued for a relatively narrow role for government, others disagreed, and commented on the challenges it faces today. (Forum now closed. Next forum begins Dec. 3.) Closed for comment; 0 Comments.
- 03 Nov 2009
- First Look
First Look: Nov. 3
Among other working papers, publications, and case and course materials this week, a new article by HBS professor Laura Alfaro and coauthor Anusha Chari increases our understanding of the promise and limitations of economic liberalization. Closed for comment; 0 Comments.
- 02 Nov 2009
- Research & Ideas
Shareholders Need a Say on Pay
"Say on pay" legislation now under debate Washington D.C. can be a useful tool for shareholders to strengthen the link between CEO pay and performance when it comes to golden parachutes, says Harvard Business School professor Fabrizio Ferri. Here's a look at how the collective involvement of multiple stakeholders could shape the future of executive compensation. Key concepts include: "Say on pay" means shareholders hold an annual advisory vote on executive pay based on a report prepared by the firm's board of directors. Say on pay might create more communication and awareness between shareholders and boards because it forces both entities to grapple with an extremely complex issue. Ferri advocates tailoring executive pay to a company's individual circumstances. Closed for comment; 0 Comments.
- 29 Oct 2009
- Working Paper Summaries
Estimating the Effects of Large Shareholders Using a Geographic Instrument
Are large shareholders good monitors of management? A public firm's shareholders have extensive legal control rights in the corporation, but in practice much of this control is delegated to managers. In companies with small, dispersed shareholders, owners may find it costly to coordinate and exercise monitoring and control, leaving management with considerable discretion. Large shareholders, however—by concentrating a block of shares in the hands of a single decision-maker—may play a beneficial role in facilitating effective owner control. Yet large shareholders are not without their costs. HBS professor Bo Becker and coauthors develop and test a framework to quantify the impact of large owners (individual non-managerial blockholders, not mutual funds or other institutions) on several key aspects of firm behavior. They show that such shareholders play an important role for corporate governance in sizable U.S. public firms, and can affect several firm policies. Key concepts include: Non-managerial individual shareholders hold blocks in firms that are headquartered close to where they reside. Large shareholders systematically target firms based on where the benefits from additional monitoring are expected to be more significant, such as smaller and relatively poorly performing firms. The presence of a large shareholder significantly reduces a firm's investments, reduces corporate cash holdings, increases payouts to shareholders, reduces total top executive pay, and increases firm performance. Firms with blockholders also have significantly more outside directors on their boards. Block presence also comes with costs, such as less liquid publicly traded shares. This may reflect a smaller float as well as the presence of privately informed traders (the blockholders). Closed for comment; 0 Comments.
Tracks of My Tears: Reconstructing Digital Music
Record labels have depended on album sales to boost profits. But in the digital music era, consumers prefer single songs over music "bundles." The result? Harvard Business School professor Anita Elberse says it is time for the industry to rethink its products and prices. Key concepts include: The unbundling of albums into a series of separately sold songs on digital music stores is hurting record label profits. Labels are less likely to get away with selling a bundle based on the strength of one or two tracks if the other songs are far less appealing. A strong artist reputation helps to curb the negative impact of unbundling. Labels might consider pushing for higher prices online and generally more flexibility in setting prices. Giving preference to quality over quantity and designing smaller, more consistent bundles may be beneficial. Closed for comment; 0 Comments.