First Look

Abstract—Disruption and transformation get a lot of hype and for good reason. Digital technologies have disrupted entire industries and incumbents have often struggled in this new world. Typical approaches used by legacy players such as using technology to improve efficiency, encouraging business units to do digital experiments, or launching independent units to spur innovation have met with limited success. These players have to strengthen their core and build for the future at the same time. It is like changing the engine of a plane while it is flying. Based on almost ten years of research, this book provides a framework for companies to reimagine their business. Using rich case studies and rigorous research, it shows how the rules of business have changed and why it is no longer enough for firms to be better or cheaper to gain competitive advantage. These new rules make it essential for companies to reexamine four fundamental aspects of their business to thrive in the digital era—their strategy, value chain, customer engagement, and organization structure. Done right, digital technology can be a tremendous opportunity for established players as demonstrated by Best Buy, New York Times, Weather Company, and others.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54862

Abstract—Given that accountable care organizations (ACOs) have not achieved the degree of cost reductions and quality improvements initially hoped for, we sought to better understand the underlying reasons for their limited success. Our analysis of American Hospital Association (AHA) data on hospital-based ACOs found that many organizations do not have the capability to track and share performance metrics, including financial metrics, and those that do are more likely to have taken on more financial risk. Our findings highlight the challenges of using ACOs as a mechanism to achieve financial cost savings. Bundled payments, which focus on narrower episodes of care, may involve fewer operational complexities and be better structured for financial success.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54887

Abstract—While the value of using social media information has been established in multiple business contexts, the field of operations and supply chain management have not yet explored the possibilities it offers in improving firms' operational decisions. This study attempts to do that by empirically studying whether using publicly available social media information can improve the accuracy of daily sales forecasts. We collaborated with an online apparel retailer to assemble a dataset that combines (1) detailed internal operational information, including data on sales, advertising, and promotions, as well as (2) publicly available social media information obtained from Facebook. We implement a variety of machine learning methods to forecast daily sales. We find that using social media information results in statistically significant improvements in the out-of-sample accuracy of the forecasts, with relative improvements ranging from 12.85% to 23.23% over different forecast horizons. We also demonstrate that nonlinear boosting models with feature selection, such as random forests, perform significantly better than traditional linear models. The best-performing method (random forest) yields an out-of-sample mean absolute percentage error (MAPE) of 7.21% when not using social media information and 5.73% when using social media information is used. In both cases, this significantly improves the accuracy of the company's internal forecasts (a MAPE of 11.97%). Combining these empirical results, we provide recommendations for forecasting sales in general as well as with social media information.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=53102

Abstract—I study how brokers distort household investment decisions. Using a novel convertible bond dataset, I find that consumers often purchase dominated bonds—cheap and expensive versions of otherwise identical bonds coexist in the market. The empirical evidence suggests that broker incentives are responsible for the inferior investments, as brokers earn a 1.12 percentage point higher fee relative to the notional invested for selling the dominated bond on average. I develop and estimate a broker intermediated search model that rationalizes this behavior and quantifies the distortions in these markets. In the model, consumer search is endogenously directed according to the incentives of brokers, and brokers price discriminate based on a consumer's level of sophistication. The model estimates indicate that costly search is a key friction in retail financial markets, but the effects of search costs are compounded when brokers are incentivized to direct the search of consumers towards high fee inferior products.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54865

Abstract—Online channels generate frictions when selling products with nondigital attributes, such as apparel. Customers may be reluctant to purchase products they have not been able to try on, and those customers who do purchase may return products when they do not fit as expected. Virtual fitting-room technologies provide information about how a product fits a particular customer and promise to mitigate some of the frictions the information gap generates in the retailers’ supply chains. By implementing a series of randomized field experiments, we study the value of virtual fit information in online retail. In our experiments, customers are randomly assigned to a treatment condition where virtual fit information is available or to a control condition where virtual fit information is not available. Our results show that offering virtual fit information increases conversion rates and order value and reduces fulfillment costs arising from returns and home try-on behavior, that is, customers ordering multiple sizes of the same product. We explore mechanisms through which providing virtual fit information helps customers and retailers. We argue that the virtual fitting tool creates spillovers even to products that are not available for virtual try-on, increases loyalty, helps customers better parse their choice sets, and reduces uncertainty by providing size recommendation.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=53231

Abstract—We examine patient gender disparities in survival rates following acute myocardial infarctions (i.e., heart attacks) based on the gender of the treating physician. Using a census of heart attack patients admitted to Florida hospitals between 1991 and 2010, we find higher mortality among female patients who are treated by male physicians. Male patients and female patients experience similar outcomes when treated by female physicians, suggesting that unique challenges arise when male physicians treat female patients. We further find that male physicians with more exposure to female patients and female physicians have more success treating female patients.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54860

Abstract—As the economy becomes more information based, firms are increasingly using crowdsourced public goods as inputs for innovation and production. Counterintuitively, some firms pay their employees to contribute to the creation of these goods, which can be used freely by their competitors. This study argues that such firms learn by contributing as they receive feedback from the crowd of more experienced users and are therefore able to better capture value from using the goods. Data on firm contributions to open source software (OSS), an important crowdsourced public good, is used to test the theoretical predictions. Using matching and panel data methods to help address endogeneity concerns, this study shows that contributing firms capture up to 100% more productive value from usage of OSS than their free-riding peers. Furthermore, this paper examines what types of contributions are most beneficial and in what technological environments such learning can best be applied.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=54809

Abstract—Biologics represent a substantial and growing share of the U.S. drug market. Traditional “small molecule” generics quickly erode the price and share of the branded product upon entry; however, only a few biosimilars have been approved in the U.S. since 2015, thereby largely preserving biologics from competition. We analyze European markets, which have had biosimilar competition since 2006. Using our own survey, we analyze how market features and public policies predict biosimilar entry, price, and penetration, finding significant heterogeneity across countries and products. Effective buyer institutions are associated with increased biosimilar penetration. Our estimates can inform ongoing policy discussions.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=54886

Abstract—To scale service operations requires retrieving knowledge across the organization. However, prior work highlights that individuals on the periphery of organizational knowledge networks may struggle to access useful knowledge at work. A knowledge repository has the potential to help peripheral individuals gain access to valuable knowledge because it is universally available and can be used without social interaction. However, for it to successfully serve this equalizing function, those on the periphery of the organizational knowledge networks must actually use it, possibly overcoming barriers to doing so. In this paper, we develop a multilevel model of knowledge retrieval in teams to explore how individuals on the periphery of knowledge networks—because of their inexperience, location, lack of social capital, gender, or role—access knowledge from such a knowledge repository. Unexpectedly, we find that individuals whose experience and position already provide access to vital knowledge use a knowledge repository more frequently than individuals on the organizational periphery. We argue that this occurs because the knowledge repository—despite its appearance of equivalent accessibility—is actually more accessible to central than to peripheral players. Thus, knowledge retrieval is not driven primarily by the need to overcome limited access to other knowledge sources. Rather knowledge retrieval is facilitated when actors know how to reap value from the knowledge repository, which ironically improves with increasing access to other sources of knowledge. We conclude that a knowledge repository is unlikely to scale service operations without additional intervention.

Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=53928

Abstract—Companies often assign workers to far-flung locations to fill critical roles and to develop human capital. Yet little is known about how workers perform in assignments to locations far from their hometowns, which may subject them to increased cultural distance, information costs, and effects related to social attachment to hometown/workplace. By exploiting an Indian technology firm’s policy of randomly assigning entry-level employees to eight widely scattered locations, we empirically assess how distance from hometown affects workers’ performance. Our results suggest that distance from hometown has a positive effect on worker performance in the short term and a negative effect over the longer term. We offer evidence on a key mechanism: how employees allocate their time to work-related activities and to visiting distant family. To do so, we use field interviews, sub-sample analyses, and micro-data on the number of optional skill-development courses employees complete and on leave taken during the major Indian festival of Diwali. We find evidence of heterogenous effects based on the location of the production center and on gender.

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Abstract—While prior research recognizes that women struggle to maintain legitimacy for their successes and that self-narratives play a key role in building such legitimacy, theory provides limited insight into how women build legitimacy through their self-narratives. Our findings from an inductive, qualitative study of 40 women who rose to elite levels in corporations or entrepreneurial ventures during the latter half of the 20th century, despite considerable underrepresentation by women in similar roles, shed new light on how women narrate their own legitimacy. We build a theoretical framework showing how women legitimate their successes in the face of gender-based challenges, identifying six discursive legitimation strategies women use to explain and justify success against the odds. We also explore why women differ in the constellations of strategies they present in their self-narratives. While women universally pull upon multiple discursive legitimation strategies to explain their successes, we find that women’s social class origins and the organizational sector in which women ascended, either corporate or entrepreneurial, relate to the discursive strategies women employ in their legitimacy narratives.

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Abstract—Across the globe, people commute an average of 38 minutes each way. Several large-scale surveys indicate that lengthy commutes decrease job satisfaction and increase turnover. Despite the prominence of commuting in everyday life, little is known about why commuting is so aversive, who is most affected by the commuting experience, when people are particularly affected, and how people could better cope with lengthy commutes. Integrating theories of boundary work, self-control, and work-family conflict, we propose that commutes serve as transitions between home and work roles. Because employees hold no defined role during their commute, lengthy commutes keep employees in limbo between their home and work roles for longer, which gives rise to aversively experienced role ambiguity. Across three studies, including a field study and a four-week-long intervention study, we find that lengthy morning commutes are more aversive for employees with lower trait self-control and greater work-family conflict, leading to decreased job satisfaction and increased turnover. In addition, we find that employees who engage in role-clarifying prospection—role-related thoughts about their upcoming (work) role—are less likely to be negatively affected by lengthy commutes to work. Employees with higher levels of trait self-control are more likely to engage in role-clarifying prospection, and employees who experience higher levels of work-family conflict are more likely to benefit from role-clarifying prospection. Therefore, although commuting is typically seen as an undesirable part of the workday, our theory and results point to the benefits of using it as an opportunity for transitioning into a different role.

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Abstract—This working paper examines the impact of modern business enterprise on the natural environment of Latin America during the globalization waves between the 19th century and the present day. It argues that although global capitalism created much wealth for the region, this was at the cost of massive ecological destruction in Latin America. During the first global economy considerable wealth was created from the exploitation of natural resources for the land-owning elite in Latin America, at the cost of large-scale ecological destruction. During the Great Reversal in the mid-20th century, public policies aimed at “catching up” resulted in the co-proliferation of hydro-electric schemes and resulting co-creation of ecological damage by firms and governments. In the new global economy since 1980, renewed economic growth and consumerism resulted in mountains of waste in increasingly polluted mega-cities. Biodiversity and the natural environment have been challenged across the subcontinent. However, there were interesting positives as these ecological horrors also created opportunities for a surprising cohort of green businesses across sectors ranging from beauty and health to ecotourism. In the 21st century, both business and governments in the region needed to address sustainability issues far more seriously, before a point of no return was reached.

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Abstract—We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. We find that the impact of the minimum wage depends on whether a restaurant was already close to the margin of exit. Restaurants with lower ratings are closer to the margin of exit at all observed minimum-wage levels and are disproportionately driven out of business by increases to the minimum wage. Our point estimates suggest that a one-dollar increase in the minimum wage leads to a 14% increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating on Yelp) but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale). Looking at data from delivery orders, we find that lower-rated restaurants also increase prices in response to minimum-wage increases. Overall, our analysis also highlights how digital data can be used to shed new light on labor policy and the economy.

Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=52552

Abstract—In many-to-many matching with contracts, the way in which contracts are specified can affect the set of stable equilibrium outcomes. Consequently, agents may be incentivized to modify the set of contracts upfront. We consider one simple way in which agents may do so: unilateral bundling, in which a single agent links multiple contracts with the same counterparty together. We show that essentially no stable matching mechanism eliminates incentives for unilateral bundling. Moreover, we find that unilateral bundling can sometimes lead to Pareto improvement—and other times produces market power that makes one agent better off at the expense of others.

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A 16th century Renaissance masterpiece, missing for 137 years, believed by many to have been destroyed and then rediscovered less than a decade ago, becomes the most expensive painting ever sold, all the while surrounded by controversy. Did the buyer of Leonardo da Vinci's painting pay too much? Was it real? Did it matter? The sale of Leonardo's painting allows students to reengineer brand equity to understand from what it is derived and how marketing actions influence changes in it. Methods for brand valuation can be discussed and issues related to branding in contemporary times, such as authenticity, legitimacy, authorship, craftsmanship, and storytelling can be used to show how brand value is built and destroyed. Brand partnerships, particularly between and among Leonardo, Christie's auction house, the sellers, the experts who attributed the painting to Leonardo, and the celebrities used to market it, are dissected to understand how brand meaning and value transfer from one partner to another.

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In August 2017, Amazon acquired Whole Foods Market for $13.7 billion. Whole Foods was struggling with high costs and faced growing competition from traditional supermarkets offering more organic products. Prior to the acquisition, Whole Foods began rolling out a new order-to-shelf (OTS) inventory management system that many observers believed had led to shortages. For years, store team leaders at Whole Foods were empowered to make inventory decisions and tailor their stores to meet local needs, but the OTS system, and an increasing number of strict rules for purchasing and displaying goods, upset many employees. Should Amazon push Whole Foods to improve performance by emphasizing efficiency and standardization? Or should it aim to maintain a sense of empowerment among employees?

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Steinhoff International Holdings N.V. was a holding company whose subsidiaries manufactured, distributed and sold furniture and household products. Steinhoff was widely known as a South African company because it first listed on the South African Johannesburg Stock Exchange (JSE) and its global headquarters was in South Africa. However, Steinhoff went on to expand from distribution and manufacturing to retail businesses across 30 countries, employing over 130 thousand people. As its global revenues grew, especially in Europe, Steinhoff created a new holding company, Steinhoff International Holdings N.V. incorporated in the Netherlands and with a primary listing in Germany and secondary listing on the JSE. Steinhoff was soon mired in allegations and investigations of accounting misrepresentations and came crashing down on December 6, 2017 after admission of possible accounting irregularities. The case is set days after news broke out about the accounting irregularities and explores the decision of the (JSE) on whether to suspend the listing of Steinhoff’s securities.

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By 2018, it was clear that U.S. Green Building Council (USGBC) had significantly contributed to the growth of green building and over its 25-year history had become a powerful brand in the construction sector with its Leadership in Energy and Environmental Design (LEED) standard. Nonetheless, USGBC faced two significant challenges moving forward: maintaining LEED’s leadership position as the green building standard in the U.S. and increasing the proportion of building stock that met the LEED standard. The case provides background on the USGBC and the evolution of its LEED standard, including how the standards are set and green building benefits and costs.

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