- 14 Nov 2006
- First Look
- 13 Nov 2006
- Working Paper Summaries
A New Framework for Analyzing and Managing Macrofinancial Risks of An Economy
The vulnerability of a national economy to volatility in the global markets for credit, currencies, commodities, and other assets has become a central concern of policymakers, credit analysts, and investors everywhere. This paper describes a new framework for analyzing a country's exposure to macroeconomic risks based on the theory and practice of contingent claims analysis. (A contingent claim is any financial asset for which future payoff depends on the value of another asset.) In this framework, the sectors of a national economy are viewed as interconnected portfolios of assets, liabilities, and guarantees that can be analyzed like puts and calls. The framework makes it transparent how risks are transferred across sectors, and how they can accumulate in the balance sheet of the public sector and ultimately lead to a default by the government. Key concepts include: The high cost of international economic and financial crises highlights the need for a comprehensive framework to assess the robustness of countries' economic and financial systems. Contingent claims analysis provides a natural framework for analysis of mismatches between an entity's assets and liabilities, such as currency and maturity mismatches on balance sheets. Policies or actions that reduce these mismatches will help reduce risk and vulnerability. This framework is useful to both the public and private sectors. Closed for comment; 0 Comments.
- 13 Nov 2006
- Research & Ideas
Science Business: What Happened to Biotech?
After thirty years the numbers are in on the biotech business—and it's not what we expected. The industry in aggregate has lost money. R&D performance has not radically improved. The problem? In a new book, Professor Gary Pisano points to systemic flaws as well as unhealthy tensions between science and business. Key concepts include: The biotech industry has underperformed expectations, caught in the conflicting objectives and requirements between science and business. The industry needs to realign business models, organizational structures, and financing arrangements so they will place greater emphasis on long-term learning over short-term monetization of intellectual property. A lesson to managers: Break away from a strategy of doing many narrow deals and focus on fewer but deeper relationships. Closed for comment; 0 Comments.
- 09 Nov 2006
- Research & Ideas
Andy Grove: A Biographer’s Tale
Podcast: For Harvard Business School professor Richard S. Tedlow, Intel co-founder Andy Grove is one of the most important and intriguing CEOs in American business history. In this interview, Tedlow discusses his new biography, Andy Grove: The Life and Times of an American with Jim Aisner. Closed for comment; 0 Comments.
- 07 Nov 2006
- First Look
- 06 Nov 2006
- Research & Ideas
How South Africa Challenges Our Thinking on FDI
After the fall of apartheid, South Africa accepted the standard prescription for countries to receive more foreign direct investment. Yet FDI has been a mere trickle. Why? The answer may reside in the country's strong corporate environment, says HBS professor Eric D. Werker. Key concepts include: South Africa has received just a fraction of the foreign direct investment experienced by other comparable emerging-market economies, challenging some standard views about how FDI works. After apartheid, South African conglomerates had money to invest as well as a large market share within their industry. Foreign firms or asset managers who want exposure to South Africa might simply choose to go through financial markets. A major test of South Africa's infrastructure and security will be World Cup soccer in 2010. Closed for comment; 0 Comments.
- 02 Nov 2006
- Working Paper Summaries
Managing Functional Biases in Organizational Forecasts: A Case Study of Consensus Forecasting in Supply Chain Planning
By their very nature, consensus forecasts contain subjective elements that can compromise forecast accuracy. In this case study of the implementation of a sales and operations planning process in a consumer electronics company, Oliva and Watson studied the organizational and political dimensions of forecast generation and improvement. Ultimately, consensus forecasting constructively managed the influence of biases (such as overconfidence) on forecasts. Key concepts include: Better and more integrated information is not sufficient for a good forecast. Design the process so that social and political dimensions of the organization are effectively managed. Create an independent group to manage the forecast process, not the forecast itself. This helps to stabilize the political dimension. Unintended incentives and blind spots can arise as a result of newly implemented processes, so managers need to control for biases and their effects on system performance. Insights from this case study can be generalized and extended to other settings that require cross-functional coordination. Closed for comment; 0 Comments.
- 02 Nov 2006
- Working Paper Summaries
Resolving Information Asymmetries in Markets: The Role of Certified Management Programs
Hundreds of thousands of firms rely on voluntary management programs to signal superior management practices to interested buyers, regulators, and local communities. Such programs typically address difficult-to-observe management attributes such as quality practices, environmental management, and human rights issues. The absence of performance standards and, in most cases, verification requirements has led critics to dismiss voluntary management programs as marketing gimmicks or "greenwash." Toffel examines whether a voluntary environmental management program with a robust verification mechanism attracts participants with superior environmental performance, and whether the program elicits improved environmental performance. His study focuses on the ISO 14001 Environmental Management System Standard, but the results have implications for voluntary management programs that govern many other difficult-to-observe management issues. Key concepts include: A voluntary management program with robust verification, such as independent certification, can distinguish organizations based on their difficult-to-observe management practices. Third-party certification may be a critical element to ensure that voluntary management programs legitimately distinguish participants. This finding is in sharp contrast with prior studies that found no evidence that superior performers disproportionately adopted voluntary management programs with weak or no verification mechanisms. For firms, the evidence that ISO 14001 distinguishes adopters as less pollution-intensive many encourage firms to use ISO 14001 to screen suppliers. Regulators should seriously consider using ISO 14001 as an indicator of superior performance. The results of the study should encourage those who have designed or adopted other voluntary management programs that lack robust verification mechanisms to consider whether adding such a mechanism would substantially bolster the credibility of the program. Closed for comment; 0 Comments.
- 02 Nov 2006
- Working Paper Summaries
Organizational Response to Environmental Demands: Opening the Black Box
How and why do organizations respond differently to pressures from different stakeholders? This question is central to organizational theory and feeds into strategic management research as well. Delmas and Toffel develop and test a model that describes why organizations respond differently to similar stakeholder pressures. They suggest that differences in how organizations distribute power across their internal corporate departments lead their facilities to prioritize different institutional pressures and thus adopt different management practices. Key concepts include: Stakeholder pressures are channeled to different organizational functions, which influence how they are received—and acted upon—by facility managers. As a result, managers of facilities that are subjected to comparable institutional pressures may adopt distinct sets of management practices to appease their external constituents. Closed for comment; 0 Comments.
- 01 Nov 2006
- Working Paper Summaries
Male Circumcision and AIDS: The Macroeconomic Impact of a Health Crisis
The AIDS epidemic is a humanitarian disaster that has struck sub-Saharan Africa with particular severity, but its macroeconomic impact is much less certain. Though conflicting theories abound, empirically-based studies on the link between HIV prevalence rates and economic growth have shown no consensus. Given the significant medical evidence that male circumcision can reduce the risk of contracting HIV in Africa, tribal circumcision practices provide an "experimental" setting to test the impact of the AIDS epidemic on the overall economy. Key concepts include: AIDS has not had a measurable impact on key economic variables in Africa such as gross domestic product per capita, savings rates, and fertility. Youth literacy levels may have increased more slowly than they would have in the absence of AIDS, suggesting that HIV may decrease investment in education. The AIDS epidemic may have led to an increase in malnutrition, perhaps supporting the hypothesis that AIDS has contributed to the persistence of poverty in Africa. While the impact of the epidemic on growth has not been as large as the world feared, governments of high-AIDS countries need to establish educational and nutritional outreach. Closed for comment; 0 Comments.
- 31 Oct 2006
- HBS Case
Governing Sumida Corporation
In a new Harvard Business School case, Professor Lynn Paine and her colleagues explore the nature of corporate governance systems by studying Japanese electronics components maker Sumida Corp. CEO Shigeyuki Yawata looks to create a governance structure that would be transparent to investors and stakeholders worldwide. Closed for comment; 0 Comments.
- 30 Oct 2006
- First Look
- 29 Oct 2006
- Research & Ideas
The History and Influence of Andy Grove
Richard S. Tedlow discusses his research on Silicon Valley legend Andy Grove and how he altered much more than the chip industry. Closed for comment; 0 Comments.
- 25 Oct 2006
- Op-Ed
Fixing Executive Options: The Veil of Ignorance
Who says you can't rewrite history? Dozens of companies have been caught in the practice of backdating options for top executives. But this is only part of the problem with C-level compensation packages, which often motivate top executives to act in their own best interests rather than those of shareholders. Professors Mihir Desai and Joshua Margolis turn to philosopher John Rawls for a solution: Reward the execs, but don't give them the details. Key concepts include: Too often executive incentive packages are not aligned with the best interests of shareholders. Why create long-term value if your bread is buttered by quarterly performance? Option compensation could be restructured to ensure that managers were aware of the value of their compensation without any knowledge of the details of their compensation—a concept inspired by philosopher John Rawls' work on distributive justice. These options may only be useful for CEOs, senior officers, and directors—not middle management. Closed for comment; 0 Comments.
- 24 Oct 2006
- First Look
- 23 Oct 2006
- Research & Ideas
Will the “Long Tail” Work for Hollywood?
The "long-tail phenomenon" is well documented: Amazon.com makes significant profits selling many low-volume books. But can the long tail work for video sales as well? A new working paper by professors Anita Elberse and Felix Oberholzer-Gee suggests that it may not bring the same benefits to Hollywood. Key concepts include: For video sales, the long-tail phenomenon is not as pronounced at it is for books. There is evidence of a shift in sales to the tail for video, but an increasing number of titles do not sell at all. Hollywood strategists have no easy answers for pumping up revenue, given a decline in the number of blockbuster hits. This new research suggests that the long-tail phenomenon might not be a panacea for video sales. The music industry may be more of a long-tail beneficiary than the movie industry. Closed for comment; 0 Comments.
- 18 Oct 2006
- Research & Ideas
New at the Helm: A Talk with HBS Dean Light
As Harvard Business School's ninth Dean, Jay Light takes control at a critical point in time. Light discusses the opportunities brought by globalism, challenges in recruiting and developing faculty, and program innovation needed to meet the needs of 21st-century business leaders. Key concepts include: Preparing students to lead in a globalized world is one of the largest challenges and opportunities facing Harvard Business School. Like many companies and institutions, the School is looking at innovative ways to attract and train faculty, while trying to keep faculty near retirement involved in the School. Healthcare is an extremely fertile area for business management research and collaboration with other parts of Harvard University. Closed for comment; 0 Comments.
- 18 Oct 2006
- Working Paper Summaries
Racial Diversity Initiatives in Professional Service Firms: What Factors Differentiate Successful from Unsuccessful Initiatives?
What organizational factors are needed for racial diversity initiatives to succeed? While diversity continues to grow in importance in organizations, very little research has focused on the processes that underlie diversity management. Modupe Akinola and David A. Thomas propose a study intended to explore management initiatives that focus on racial diversity in professional service firms. Given that such firms rely on the high level of skills, expertise, and diverse perspectives offered by their professional staff, these firms may be ideal laboratories for examining diversity initiatives. Key concepts include: The success of diversity initiatives in professional service firms is driven by five criteria: a well articulated and widely bought-into diversity strategy, leadership support, an engaged employee base, innovative approaches to recruiting and retaining minorities, and management practices that are integrated and aligned with the initiative. Firms that achieve sustained success in their diversity initiatives should show evidence of more of these success criteria relative to their peers in the same industries. Organizations with a strong understanding of the factors that influence the success of diversity initiatives may begin to better recruit and retain minorities. Such insights may even extend to organizational practices unrelated to diversity. Closed for comment; 0 Comments.
- 17 Oct 2006
- First Look
Lessons Not Learned About Innovation
Why have decades of executives fumbled innovation? One reason: Existing corporate structures, controls, and incentives do work against out-of-the-box thinking. Professor Rosabeth Moss Kanter, who has just published a Harvard Business Review article on the topic, discusses her research into the classic traps of innovation and how to avoid them. Key concepts include: The search for new ideas must go broad and deep throughout an organization. Traditional corporate controls and structures don't work well with innovation teams. New methods are needed to gauge effectiveness. Innovators must be kept connected to the mainstream business. Isolating them leads to tensions with other parts of the company and lessens the chances that their work will be adopted. Closed for comment; 0 Comments.