First Look

August 23, 2016

Among the highlights included in new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

We get less productive when left to order our own tasks

Researchers have developed many theories on how to best schedule work to achieve maximum operational performance. Robert S. Huckman and colleagues study the question of what happens when workers are allowed to deviate from the prescribed order. The research, which looks at tasks performed in a radiology services setting, finds that, on average, “deviations lead to slower completion times, providing evidence of the costs of exercising discretion.” Discretionary Task Ordering: Queue Management in Radiological Services.

Demythologizing sustainable investing

Do environmental, social, and governance (ESG) programs reduce returns on capital and long-run shareholder value? George Serafeim and co-authors set the record straight on this and other misconceptions around sustainable investing in the paper ESG Integration in Investment Management: Myths and Realities.

Can a great customer service company clone itself?

The case study Hillside Beach Club: Delivering the Ultimate Family Vacation in the Mediterranean looks at possible growth plans of a popular and long-running resort, Hillside Beach Club. Students reading the case are challenged to “ponder what it takes for a company to repeatedly increase customer satisfaction rates and profitability with the same product over the years,” according to authors Rajiv Lal and Gamze Yucaoglu.

A complete list of new research and publications from Harvard Business School faculty follows.

— Sean Silverthorne
  • 2016
  • New York: Palgrave Macmillan

Experiences in Liberal Arts and Science Education from America, Europe, and Asia: A Dialogue Across Continents

By: Kirby, William C., and Marijk C. van der Wende, eds.

Abstract—This book highlights the experiences of international leaders in liberal arts and science education from around the world as they discuss regional trends and models, with a specific focus on developments in and cooperation with China. Focusing on why this model responds to the twenty-first century requirements for excellence and relevance in undergraduate education, contributors examine if it can be implemented in different contexts and across academic cultures, structures, and traditions.

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  • Spring 2016
  • Journal of Applied Corporate Finance

ESG Integration in Investment Management: Myths and Realities

By: Kotsantonis, Sakis, Christopher Pinney, and George Serafeim

Abstract—The authors’ aim in this article is to set the record straight on the financial performance of sustainable investing while also correcting a number of other widespread misconceptions about this rapidly growing set of principles and methods. Myth Number 1: Environmental, social, and governance (ESG) programs reduce returns on capital and long-run shareholder value. Reality: Companies committed to ESG are finding competitive advantages in product, labor, and capital markets, and portfolios that have integrated “material” ESG metrics have provided average returns to their investors that are superior to those of conventional portfolios, while exhibiting lower risk. Myth Number 2: ESG is already well integrated into mainstream investment management. Reality: The UNPRI signatories have committed themselves only to adhering to a set of principles for responsible investment, a standard that falls well short of integrating ESG considerations into their investment decisions. Myth Number 3: Companies cannot influence the kind of shareholders that buy their shares, and corporate managers must often sacrifice sustainability goals to meet the quarterly earnings targets of increasingly short-term–oriented investors. Reality: Companies that pursue major sustainability initiatives, and publicize them in integrated reports and other communications with investors, have also generally succeeded in attracting disproportionate numbers of longer-term shareholders. Myth Number 4: ESG data for fundamental analysis is scarce and unreliable. Reality: Thanks to the efforts of reporting and investor organizations such as SASB and Ceres, as well as CDP data providers like Bloomberg and MSCI, much more “value-relevant” ESG data on companies has become available in the past 10 years. Myth Number 5: ESG adds value almost entirely by limiting risks. Reality: Along with lower risk and a lower cost of capital, companies with high ESG scores have also experienced increases in operating efficiency and expansions into new markets. Myth Number 6: Consideration of ESG factors might create a conflict with fiduciary duty for some investors. Reality: Many ESG factors have been shown to have positive correlations with corporate financial performance and value, prompting ERISA in 2015 to reverse its earlier instructions to pension funds about the legitimacy of taking account of “non-financial” considerations when investing in companies.

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  • forthcoming
  • Management Science

Maintaining Beliefs in the Face of Negative News: The Moderating Role of Experience

By: Staats, B., D. KC, and F. Gino

Abstract—Many models in operations management involve dynamic decision making that assumes optimal updating in response to information revelation. However, behavioral theory suggests that rather than updating their beliefs, individuals may persevere in their prior beliefs. In particular, we examine how individuals’ prior experiences and the experiences of those around them alter their belief perseverance in operational decisions after the revelation of negative news. We draw on an exogenous announcement of negative news by the Food and Drug Administration and explore how it affects interventional cardiologists deciding between two types of cardiac stents. Analyzing 147,000 choices over six years, we find that individuals do respond to negative news by using the focal production tool less often. However, we find that both individuals’ own experiences and others’ experiences alter their responses. Moreover, although individual and other experience act as substitutes prior to negative news, we find that this substitution curtails significantly following the negative announcement. Finally, we find that experience leads doctors to discount negative news more rapidly over time. Two lab studies replicate our main findings and show that behavioral biases due to differences in perceptions of expertise drive the effect. Our research contributes not only to operations research, but also to the practice of health care and operations.

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  • July–August 2016
  • European Business Review

The Decoupling Effect of Digital Disruptors

By: Teixeira, Thales S., and Peter Jamieson

Abstract—A new wave of Internet startups is disrupting established businesses by the process of “decoupling.” In this article, the authors discuss how these new digital disruptors allow consumers to benefit from one activity (e.g., watching shows) without incurring the cost of the other (e.g., watching ads) and offer strategies for established businesses to respond to this threat.

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  • forthcoming
  • Academy of Management Best Paper Proceedings

Organizational Decision-Making and Information: Angel Investments by Venture Capital Partners

By: Wu, Andy

Abstract—We study information aggregation in organizational decision-making for the financing of entrepreneurial ventures. We introduce a formal model of voting where agents face costly tacit information to improve their decision quality. Equilibrium outcomes suggest a theoretical tension for group decision-making between the benefits of information aggregation and a cost from the participation of uninformed agents, and this tension presents a boundary condition for when a group decision is superior to an individual decision. We test the implications of the model for a particular phenomenon in venture capital: private angel investments by the partners outside of their employer, which represent investments passed on by the employer. Venture capital partners, acting independently with their personal funds, make investments into younger firms with less educated and younger founding teams than their employing VC firms, but these investments perform financially similarly or better on some metrics even when controlling for investment size, stage, and industry. Geographic distance and technological inexperience by the VC increase the probability the investment is taken up by a partner and not the VC. This work contributes to an emerging stream of literature on information aggregation in organizations and the established literatures on resource allocation and incumbent spin-outs.

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Abstract—Multinationals exhibit distinct agglomeration patterns, which have transformed the global landscape of industrial production (Alfaro and Chen, 2014). Using a unique worldwide plant-level dataset that reports detailed location, ownership, and operation information for plants in over 100 countries, we construct a spatially continuous index of pairwise-industry agglomeration and investigate the patterns and determinants underlying the global economic geography of multinational firms. In particular, we run a horserace between two distinct economic forces: location fundamentals and agglomeration economies. We find that location fundamentals including market access and comparative advantage and agglomeration economies including capital-good market externality and technology diffusion play a particularly important role in multinationals' economic geography. These findings remain robust when we use alternative measures of trade costs, address potential reverse causality, and explore regional patterns.

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CEO Personality and Firm Policies

By: Gow, Ian D., Steven N. Kaplan, David F. Larcker, and Anastasia A. Zakolyukina

Abstract—Based on two samples of high quality personality data for chief executive officers (CEOs), we use linguistic features extracted from conferences calls and statistical learning techniques to develop a measure of CEO personality in terms of the Big Five traits: agreeableness, conscientiousness, extraversion, neuroticism, and openness to experience. These personality measures have strong out-of-sample predictive performance and are stable over time. Our measures of the Big Five personality traits are associated with financing choices, investment choices, and firm operating performance.

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Discretionary Task Ordering: Queue Management in Radiological Services

By: Ibanez, Maria, Jonathan R. Clark, Robert S. Huckman, and Bradley R. Staats

Abstract—A long line of research examines how best to schedule work to improve operational performance. This literature typically takes the perspective of a central planner who directs individuals to execute tasks in a prescribed order. In many settings, however, workers have discretion to deviate from the assigned order. This paper considers the operational implications of “discretionary task ordering,” defined as the task sequence resulting from an individual’s ability to select which task to complete next from a work queue. Using data from more than 2.4 million radiological studies read by 91 physicians over a period of two and a half years, we examine the conditions under which discretion is exercised to deviate from the assigned First-In-First-Out scheduling policy and the performance effects of those choices. Exploiting random assignment of tasks (cases) to doctors’ queues, together with variation in queue characteristics, we find that, on average, deviations lead to slower completion times, providing evidence of the costs of exercising discretion. Doctors tend to deviate more, and deviations tend to be less detrimental with experience, yet deviations remain harmful even for high levels of experience. Moreover, doctors tend to deviate to follow two common ordering strategies: shortest expected processing time and batching similar cases. Choosing the shortest tasks first is particularly detrimental for speed. Batching is associated with better performance when it occurs naturally, but not when it results from using discretion, suggesting that the benefit of repetition does not compensate for the cost of exercising discretion in this setting. Our research offers a behavioral perspective on queue management and highlights that discretion may have unintended negative costs.

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  • Harvard Business School Case 516-092

The Birth, Life and Death of Rdio

No abstract available.

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  • Harvard Business School Case 917-004

Disintermediation in Two-Sided Marketplaces

Two-sided marketplaces often risk disintermediation: users may rely on the marketplace to find each other but then perform related future transactions—or even the current transaction—without the platform’s involvement and without paying any fees the platform may charge. This technical note assesses which marketplaces are most vulnerable to disintermediation and offers a set of strategies marketplaces can implement in order to reduce their vulnerability.

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In February 2015, Daniel Loeb (a U.S.–based activist investor) announced his firm had a large investment in FANUC Corporation, a leading producer of industrial robots and software for machine tools. Loeb was demanding that the Japanese firm change its financial and governance policies (e.g., distribute more cash, fix its “illogical” capital structure, and provide more information to shareholders). FANUC’s CEO, Yoshiharu Inaba, and his board must decide if and how to respond. One the one hand, the firm had been very successful having built leading global market shares in each of its core divisions and profitability that exceeded what Goldman Sachs earned on a per-person basis. On the other hand, the Japanese government was calling for financial and governance reform as part of the prime minister’s recently announced economic growth strategy known as “Abenomics.” Although Inaba and his team had previously considered many of the proposed changes, the question was whether it was now time to actually make some of the changes.

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  • Harvard Business School Case 416-047

Suominen Wipes the Slate Clean

In 2016, after successfully turning around Finnish nonwovens manufacturer Suominen, CEO Nina Kopola faces a decision on the company’s strategy moving forward.

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  • Harvard Business School Case 316-138

Match Next: Next Generation Middle School?

This case is set in 2015 as a team at Match Education, a high performing charter middle school in Boston, explores new staffing and technology approaches in their quest to obtain what they term "jaw dropping" results. The team hopes to test and model for other schools solutions to specific educational problems. In 2013, the team began to think about the redesign, creating a school model in which students spend significantly more time reading, providing more individualized attention to students and families, addressing the challenge of finding outstanding teachers, and doing so in a cost-effective manner. In their redesigned school, Match Next, students receive all of their instruction from inexperienced newly minted college graduates called tutors, who are supervised by one master teacher, called a Director of Curriculum of Instruction (DCI). In addition, the Match Next team infuses technology into instruction (e.g., students watch instructional videos and complete online activities) and operations (e.g., school keeps track of student assessment results and select activities and problem sets from online databases). After the first year as a full-day program, results on the state test were very strong in math but below expectations in ELA (English Language Arts). The case explores questions related to designing the school model, interpreting early results, and assessing the team's ability to disseminate their model to other schools.

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In 2015, having led Hillside Beach Club (HBC) for 21 successful years, Edip Ilkbahar, HBC’s founder and CEO, was looking over the plans for a new branch in Cyprus. For over two decades, Ilkbahar’s company had enjoyed high occupancy, high guest satisfaction, and high return-visitor rates, not to mention increasing profits from HBC’s single location in Fethiye, Turkey. Although branching out had been on the agenda for a couple of years, Ilkbahar was feeling the pressure to recreate HBC’s culture in a new location to live up to and even surpass its established success. In parallel, Ilkbahar also needed to make sure that employee motivation at HBC’s original Fethiye location did not drop and the employees continued to deliver wholehearted service to live up to HBC’s reputation. In 2015, it certainly looked like it would be a tough year. How could Ilkbahar both try to extend HBC’s special formula for success to Cyprus while maintaining high motivation at the Fethiye installation? The case describes the forces that shape the hotel industry's structure, raising the issue of how HBC established itself a sustainable niche for competitive advantage. The case provides the context for the students to identify the design elements underlying HBC’s success and helps them explore the link between guest satisfaction and employee training, empowerment, feedback culture, continuous product development, as well as social media and marketing. The case challenges the students to ponder what it takes for a company to repeatedly increase customer satisfaction rates and profitability with the same product over the years.

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  • Harvard Business School Case 715-039

The Great Divergence: Europe and Modern Economic Growth

No abstract available.

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This case describes the motivation for and the development of Siemens' digital manufacturing enterprise vision, which became the foundation for its implementation of Industrie 4.0. While the effort started with a purely defensive move by Anton Huber, head of the Digital Factory Division, to protect his core programmable logic controller business from the migration of value to software from hardware, the scope expanded radically as the company completed the acquisition of UGS. It was then able to articulate a complete roadmap from computer-aided product inception and design through simulation and automation system design all the way to the factory floor. The initial implementation at the Electronics Works Amberg became widely cited as the prototype for Industrie 4.0. The central question of the case is the importance of vertical integration to the delivery of the vision in the face of pressure for open standards that will expose large parts of the system to competition and price pressure. How will Siemens earn a reasonable rate of return?

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  • Harvard Business School Case 716-470

Searching for a New CEO: TiVo 2016

In 2015, TiVo initiated a search for a new CEO. This case provides a profile of the CEO search and background on the company.

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