- 28 Feb 2007
- Research & Ideas
Capital Rules: The Tensions of Global Finance
With the start of the new decade, most global financial powers are rethinking a previously powerful trend toward liberalizing global finance. In his new book Capital Rules, Professor Rawi Abdelal charts the intellectual, legal, and political history of financial globalization, and the tensions facing today's world economy. Read an excerpt. Key concepts include: The year 1998 was the closest the world has come to establishing a consensus that capital's right to freedom applies always and everywhere. The world looks different to most financial policymakers in the twenty-first century, with many regions, and the United States in particular, adopting ad hoc measures that benefit their own interests but ignore the lessons learned from financial crises in the 1920s and 1930s. The European Commission is the only recognized international financial authority to support complete, unqualified capital mobility. Closed for comment; 0 Comments.
- 27 Feb 2007
- First Look
- 26 Feb 2007
- Research & Ideas
The Power of the Noncompete Clause
Noncompete clauses seem nearly universal—and not just in technology companies. But the effect is especially strong on specialist and "star" inventors, according to new research by Harvard Business School's Matt Marx, Deborah Strumsky, and Lee Fleming. Marx reflects on the business and career implications in this Q&A. Key concepts include: Noncompete clauses may be ubiquitous or nearly so, particularly in venture-funded companies, but not everyone is affected identically by noncompetes. Fundamentally, noncompetes are a form of monopoly. Just as a patent allows a monopoly on a technique or tool for a limited amount of time, a noncompete (if enforced) affords a temporary monopoly of sorts on a person. In Michigan, inventors whose patents are highly cited in other patent applications were less likely to change jobs following a change in the state law. The effect for "specialist" inventors was even stronger. Star or specialist inventors wishing to explore career opportunities may need to look outside a state that enforces noncompetes. From an employer's perspective, keep in mind that noncompetes are far from ironclad. Closed for comment; 0 Comments.
- 21 Feb 2007
- Op-Ed
What a U.N. Partnership with Big Business Could Accomplish
If the world's large corporations really are the greatest drivers of wealth creation, it only seems reasonable that their capabilities and resources can be focused on global poverty, says professor emeritus George C. Lodge. Here's the case for a partnership between business, the United Nations, and NGOs. Key concepts include: More than a trillion dollars has been spent since WWII to alleviate poverty, with marginal success. But the goal of poverty reduction will not be reached unless the world tries something new. Countries most successful in reducing poverty have focused on creating profitable businesses. They provide the jobs, income, and motivation for education and individual development that raise standards of living. Multinational corporations can play a key role by connecting local businesses to world markets, credit, and technology. A nonprofit World Development Corporation could be formed to identify and design profitable projects in poor countries in which teams of multinationals would collaborate with local partners. Closed for comment; 0 Comments.
- 20 Feb 2007
- First Look
- 19 Feb 2007
- Research & Ideas
Inexperienced Investors and Market Bubbles
The evidence isn't conclusive, but new research from Harvard Business School suggests younger fund managers may have contributed to the tech stock bubble. Professor Robin Greenwood discusses the research paper, "Inexperienced Investors and Bubbles," and what mutual fund investors should keep in mind. Key concepts include: The research supports theories that inexperienced investors are prone to buy assets with inflated prices during times of bubbles. Even professionals are susceptible to trend-chasing. Fund managers under the age of thirty-five were more likely than older managers to overly invest in tech stocks in the last bubble. Closed for comment; 0 Comments.
- 15 Feb 2007
- Research & Ideas
Helping Low-Income Families Save More
Marketers are quite efficient at targeting potential customers when they have money—that is, at tax-refund time. Professor Peter Tufano thinks tax time could also be perfect for helping low-income families save more. Closed for comment; 0 Comments.
- 14 Feb 2007
- Op-Ed
Tata-Corus: India’s New Steel Giant
By acquiring Anglo-Dutch steel firm Corus, India's Tata Steel is now one of the world's top five steel makers. Professor Tarun Khanna says the fact that the deal is the largest out of India and generated by the private sector makes this a notable event. But now comes the hard part—making the merger work. Can Tata avoid mistakes made by Chinese companies? From The Economic Times/India Times. Key concepts include: Tata's acquisition of Corus is notable not only for creating a new steel giant, but also because this deal was a private sector venture far from Indian government influence. Tata should be able to make the merger work by virtue of its position of financial strength as well as previous cross-border experiences. The West should not underestimate this heretofore relatively unknown competitor. Closed for comment; 0 Comments.
- 13 Feb 2007
- First Look
- 13 Feb 2007
- Working Paper Summaries
Electronic Hierarchies and Electronic Heterarchies: Relationship-Specific Assets and the Governance of Interfirm IT
Scholars have long been interested in the impact of information technology on the organization of work. As Andrew McAfee and colleagues argue in this study, the appropriate governance mechanism for an IT-facilitated collaboration depends on the type of IT being deployed: When an enterprise technology is required, so is an electronic hierarchy. The paper explores the issue of relationship specificity of IT assets, proposes a categorization of information technologies based on their levels of relationship specificity, and uses data from more than forty Italian industrial districts to test three hypotheses around governance of interfirm IT. These districts typically have close ties, both horizontal and vertical, and have historically worked in close collaboration with each other. Key concepts include: When an enterprise technology is required, so is an electronic hierarchy. Future research could reveal if there is a general pattern in relationship-specific investments and how entities other than powerful incumbent firms can successfully build electronic hierarchies. Future research could also help define the full spectrum of IT-based interactions and the appropriate governance mechanisms for each. Closed for comment; 0 Comments.
- 12 Feb 2007
- Working Paper Summaries
Adding Bricks to Clicks: The Effects of Store Openings on Sales through Direct Channels
Consider a retailer who operates both brick-and-mortar stores and direct channels such as direct mail catalogs and an Internet Web site. What effect does the opening of a new retail store have on direct channel sales in the retail trading area surrounding the store? Does the existence of more opportunities for consumer contact with the brand increase the retailer's direct sales, or does intra-brand, inter-channel competition erode the retailer's direct sales? Does consumer response to the retailer's brand evolve over time, perhaps as consumers go through some process of trial-and-error learning about the relative merits of stores and direct channels, or is the impact of the new store relatively discrete? Does the answer depend on whether consumers in the retail trading area have had the opportunity for previous experience with the brand's stores? This research used a proprietary longitudinal dataset from a multichannel retailer to understand what happens and to probe the implications for channel management strategy. Key concepts include: Adding a physical retail store to existing direct sales channels increases firm sales in the long run, as sales from the new store are incremental to sales from direct channels, which show little long term damage from channel competition. Adding channels produces both cannibalizing and complementary effects which operate in tandem and vary over time. Cannibalization occurs in the short term following the addition of a new channel, while complementarity takes time to manifest itself. Retail store openings cannibalize direct channel sales in the short term if physical stores do not already exist in the retail trading area, but produce complementary effects which overcome the losses from cannibalization in the long run. Our results suggest the underlying consumer shopping behavior driving this result. The opening of a retail store may induce some existing direct channel customers to switch their purchases to the retail store; simultaneously, new customers are attracted to the direct channels, perhaps due to a branding effect stemming from the publicity surrounding the new store which makes customers more aware of and more comfortable with the firm's direct channel operations. Use caution extrapolating these results to other retailers. This study involved only store openings by a single retailer with a well established and respected brand into markets where the retailer did not previously have stores. Direct retailers with less established brands may benefit even more than this retailer from branding effects by opening a new store. Closed for comment; 0 Comments.
- 12 Feb 2007
- Lessons from the Classroom
‘UpTick’ Brings Wall Street Pressure to Students
Money managers work in a stressful, competitive pressure cooker that's hard to appreciate from the safety of a business management classroom. That's why HBS professors Joshua Coval and Erik Stafford invented upTick—a market simulation program that has students sweating and strategizing as they recreate classic market scenarios. Closed for comment; 0 Comments.
- 09 Feb 2007
- Working Paper Summaries
Do Corporate Social Responsibility Ratings Predict Corporate Social Performance?
Ratings of corporations' environmental activities and capabilities influence billions of dollars of "socially responsible" investments as well as consumers, activists, and potential employees. But how well do these ratings predict socially responsible outcomes such as superior environmental performance? Companies can enhance their environmental image in one of two ways: by reducing or minimizing their impact on the environment, or by merely appearing to do so via marketing efforts or "greenwashing." This study evaluates the predictive validity of environmental ratings produced by Kinder, Lydenberg, Domini Research & Analytics (KLD), and tests whether companies that score high on KLD ratings generate superior environmental performance or whether highly rated firms are simply superior marketers of the factors that these rating agencies purport to measure. The data analysis examines all 588 large, publicly-owned companies in the United States that were both regulated by the U.S. Environmental Protection Agency and whose social performance was rated by KLD at least once during 1991-2003. This paper may be the first to examine the predictive validity of social or environmental ratings. Key concepts include: KLD ratings for environmental "concerns," such as hazardous waste and regulatory problems, have small but statistically significant effects in predicting future emissions and regulatory violations. KLD ratings for environmental "strengths," such as environmentally beneficial products or pollution prevention, do not predict future environmental outcomes. Most, but not all, of the predictive power of KLD ratings is due to the fact that lagged emissions and regulatory violations predict both lagged KLD ratings and future emissions and regulatory violations. KLD expends substantial resources attempting to measure the quality of companies' environmental management systems. The results suggest that this measurement is difficult to do well. Closed for comment; 0 Comments.
- 08 Feb 2007
- Working Paper Summaries
Managing Know-How
For many firms, the ability to create, organize, and disseminate know-how is a key factor in their ability to succeed. But should all companies engage in formal knowledge management? If not, which companies derive most value from a formal knowledge system? Conditional on implementing such a system, should the company focus more on learning from successes or learning from failures? Should such knowledge systems simply capture all experience, or should they be more selective? This paper develops and applies an economic framework to examine these questions. Key concepts include: Supporting firms' focus on best practice, information about successes is typically more useful than information about failures. Past successes can guide future successes, while past failures only point out certain pitfalls. Recording mediocre know-how can be counter-productive by inefficiently reducing employees' incentive to experiment. Larger firms with high turnover potentially gain the most from knowledge systems, but should also be the most selective when encoding information. The framework in this paper can be used to explore other questions on knowledge management. As knowledge management continues to grow in importance, a systematic economic perspective may shed important insights. Closed for comment; 0 Comments.
- 07 Feb 2007
- Research & Ideas
Dividends from Schumpeter’s Noble Failure
Before influential Harvard economist Joseph Schumpeter wrote the seminal Capitalism, Socialism and Democracy, there came the difficult-to-digest Business Cycles. Although the book was a failure, professor Thomas K. McCraw, who has written a forthcoming Schumpeter biography, believes Business Cycles developed Schumpeter's thinking on capitalism and ultimately changed the practice of business history. Excerpted from Business History Review. Closed for comment; 0 Comments.
- 07 Feb 2007
- Working Paper Summaries
The Value of Openness in Scientific Problem Solving
Scientists are generally rewarded for discoveries they make as individuals or in small teams. While the sharing of information in science is an ideal, it is seldom practiced. In this research, Lakhani et al. used an approach common to open source software communities—which rely intensely on collaboration—and opened up a set of 166 scientific problems from the research laboratories of twenty-six firms to over 80,000 independent scientists. The outside scientists were able to solve one-third of the problems that the research laboratories were unable to solve internally. Key concepts include: Opening up problem information to a large group of outsiders can yield innovative technical solutions, increase the probability of success in science programs, and ultimately boost research productivity. Open source software communities provide a model for improving the process of solving scientific problems. Outsiders can see problems with fresh eyes; in this study, problems were solved by independent scientists with expertise at the boundary of or even outside their field. Achieving true openness and collaboration will require change in the mindsets of both scientists and lab leadership. Closed for comment; 0 Comments.
- 06 Feb 2007
- First Look
- 05 Feb 2007
- Research & Ideas
Business and the Global Poor
Companies have more or less ignored 80 percent of the world's population—the global poor. The new book Business Solutions for the Global Poor, created from research and a conference at Harvard Business School, shows how both business and societal interests can be served at the base of the economic pyramid. A Q&A with co-editor V. Kasturi Rangan. Key concepts include: The goals of poverty reduction and economic profit begin to align to the degree that these ventures empower the poor, either by improving their quality of life, providing them with productivity tools and services, or by creating jobs. The productive capacity of the poor can be leveraged in creating products and services. To succeed in low-income markets, companies must strengthen their bottom-up market intelligence; utilize local leaders and community agents to bring people together; and educate investors that bringing BOP initiatives to scale and sustainability may happen more slowly than the time frames dictated by traditional corporate targets. Companies must strike a delicate balance, keeping in mind both their legal obligations to return profits to their investors as well as their social responsibilities. Companies cannot afford to treat their social license callously. Closed for comment; 0 Comments.
- 02 Feb 2007
- What Do You Think?
Is There Too Little “Know Why” In Business?
There's know-how in business and then there's "know why." Purpose is a powerful motivator on many levels, says Jim Heskett. Can we aspire to a strong sense of "know why" even if our organization is not out to change the world? What do you think? Online forum now open. Closed for comment; 0 Comments.
What Is the Government’s Role in US Health Care?
Healthcare will grab ever more headlines in the U.S. in the coming months, says Jim Heskett. Any service that is on track to consume 40 percent of the gross national product of the world's largest economy by the year 2050 will be hard to ignore. But are we addressing healthcare cost issues with the creativity they deserve? What do you think? Closed for comment; 0 Comments.