First Look

August 28, 2018

Of special interest among new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

How comparing salaries affects employee effort

When employees find out how much money their co-workers and managers make, it can affect their workplace behavior. Based on a survey of more than 2,000 employees at a multibillion-dollar corporation, Zoë B. Cullen and Ricardo Perez-Truglia say in a new working paper that employees who think their peers make more money put in less effort while employees who perceive that their managers have higher salaries work harder. How Much Does Your Boss Make? The Effects of Salary Comparisons.

This worker contract inspires innovative ideas

Companies hope their employees will innovate in ways that benefit firms, but how can they motivate their workers to develop innovative ideas? Susanna Gallani and colleagues say in a new working paper that employees under fixed-pay contracts are more likely to pursue innovative ideas that are valuable to the firm than employees under variable-pay contracts. Incentives and Employee-Initiated Innovation: Evidence from the Field.

Low-performing salespeople need frequent quotas

Low-performing salespeople bring in greater sales when they are provided with more frequent quota periods, since it prevents them from giving up in the latter part of an evaluation cycle, according to a recently revised working paper by Doug J. Chung, Das Narayandas, and Dongkyu Chang. The Effects of Quota Frequency: Sales Performance and Product Focus.

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

— Dina Gerdeman
  • 2018
  • Oakland, CA: Berrett-Koehler Publishers

Trust: Creating the Foundation for Entrepreneurship in Developing Countries

By: Khanna, Tarun

Abstract— Entrepreneurs in developing countries who assume they will have the same legal, governmental, and institutional protections as their counterparts in the West will fail. To succeed, they need to build trust within the existing structures—and this book shows how it's done

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  • in press
  • Proceedings of the National Academy of Sciences of the United States of America

How Intermittent Breaks in Interaction Improve Collective Intelligence

By: Bernstein, Ethan, Jesse Shore, and David Lazer

Abstract— People influence each other when they interact to solve problems. Such social influence introduces both benefits (higher average solution quality due to exploitation of existing answers through social learning) and costs (lower maximum solution quality due to a reduction in individual exploration for novel answers) relative to independent problem solving. In contrast to prior work, which has focused on how the presence and network structure of social influence affect performance, here we investigate the effects of time. We show that when social influence is intermittent it provides the benefits of constant social influence without the costs. Human subjects solved the canonical traveling salesperson problem in groups of three, randomized into treatments with constant social influence, intermittent social influence, or no social influence. Groups in the intermittent social-influence treatment found the optimum solution frequently (like groups without influence) but had a high mean performance (like groups with constant influence); they learned from each other, while maintaining a high level of exploration. Solutions improved most on rounds with social influence after a period of separation. We also show that storing subjects’ best solutions so that they could be reloaded and possibly modified in subsequent rounds—a ubiquitous feature of personal productivity software—is similar to constant social influence: it increases mean performance but decreases exploration

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  • August 19, 2018
  • Philosophical Transactions of the Royal Society B, Biological Sciences

The Impact of the 'Open' Workspace on Human Collaboration

By: Bernstein, Ethan, and Stephen Turban

Abstract— : Organizations’ pursuit of increased workplace collaboration has led managers to transform traditional office spaces into “open,” transparency-enhancing architectures with fewer walls, doors, and other spatial boundaries, yet there is scant direct empirical research on how human interaction patterns change as a result of these architectural changes. In two intervention-based field studies of corporate headquarters transitioning to more open office spaces, we empirically examined—using digital data from advanced wearable devices and from electronic communication servers—the effect of open office architectures on employees' face-to-face, email, and instant messaging (IM) interaction patterns. Contrary to common belief, the volume of face-to-face interaction decreased significantly (approx. 70%) in both cases, with an associated increase in electronic interaction. In short, rather than prompting increasingly vibrant face-to-face collaboration, open architecture appeared to trigger a natural human response to socially withdraw from officemates and interact instead over email and IM. This is the first study to empirically measure both face-to-face and electronic interaction before and after the adoption of open office architecture. The results inform our understanding of the impact on human behavior of workspaces that trend toward fewer spatial boundaries

Publisher's link:

  • forthcoming
  • Management Science

How Do Sales Efforts Pay Off? Dynamic Panel Data Analysis in the Nerlove-Arrow Framework

By: Chung, Doug J., Byungyeon Kim, and Byoung G. Park

Abstract— This paper evaluates the short- and long-term value of sales representatives’ detailing visits to different types of physicians. By understanding the dynamic effect of sales calls across heterogeneous physicians, we provide guidance on the design of optimal call patterns for route sales. The findings reveal that the long-term persistence effect of detailing is more pronounced for specialist physicians, whereas the contemporaneous marginal effect is higher for generalists. The paper also provides a key methodological insight to the marketing and economics literature. In the Nerlove-Arrow framework, moment conditions that are typically used in conventional dynamic panel data methods become vulnerable to serial correlation in the error structure. We discuss the associated biases and present a robust set of moment conditions for both lagged dependent and predetermined explanatory variables. Furthermore, we show that conventional tests to detect serial correlation have weak power, resulting in the misuse of moment conditions that leads to incorrect inference. Theoretical illustrations and Monte Carlo simulations are provided for validation

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"Incentives and Employee-Initiated Innovation: Evidence from the Field

By: Cai, Wei, Susanna Gallani, and Jee-Eun Shin

Abstract— Organizations often struggle with motivating employees to develop innovative ideas that may benefit the firm, especially when the standard tasks for which employees are measured and incentivized do not explicitly include innovation. Prior analytical research posits that low-powered incentives can motivate employees to generate creative ideas by diverting their attention away from fixating on performance measures associated with their standard tasks included in the incentive contract. Using data from a company that underwent an exogenous change in its employee incentive contract design towards low-powered incentives, we examine whether the design of incentive contracts for the standard tasks influences employee-initiated innovation activities. We find that employees under fixed-pay contracts are more likely to pursue innovation ideas that are valuable to the firm relative to employees under variable-pay contracts. Moreover, such efforts are concentrated on innovation ideas that are not specific to the standard task performed by the proposing employee but are applicable to issues of greater breadth for the firm and/or with a long-term view. Our findings contribute to the literature on incentives for innovation by showing how contract structure can motivate unplanned employee-initiated innovation activities that are difficult to contract upon ex ante

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IQ from IP: Simplifying Search in Portfolio Choice

By: Chen, Huaizhi, Lauren Cohen, Umit Gurun, Dong Lou, and Christopher J. Malloy

Abstract— Using a novel database that tracks web traffic on the SEC’s EDGAR servers between 2004 and 2015, we show that mutual fund managers gather information on a very particular subset of firms and insiders, and their surveillance is very persistent over time. This tracking behavior has powerful implications for their portfolio choice and its information content. An institution that downloaded an insider-trading filing by a given firm last quarter increases its likelihood of downloading an insider-trading filing on the same firm by more than 41.3% this quarter. Moreover, the average tracked stock that an institution buys generates annualized alphas of between 9% to 18% relative to the purchase of an average non-tracked stock. We find that institutional managers tend to track members of the top management teams of firms (CEOs, CFOs, Presidents, and Board Chairs) and tend to share educational and location-based commonalities with the specific insiders they choose to follow. Collectively, our results suggest that the information in tracked trades is important for fundamental firm value and is only revealed following the information-rich dual trading by insiders and linked institutions

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The Effects of Quota Frequency: Sales Performance and Product Focus

By: Chung, Doug J., Das Narayandas, and Dongkyu Chang

Abstract— This study investigates the comprehensive and multidimensional effects of quota frequency on sales force performance. We develop a theory of salespeople’s behavior with regard to the effect of sales quota frequency on aggregate effort and the product type focus. The theory includes many realistic elements such as salespeople’s multi-dimensional effort, heterogeneity in ability, product focus, and forward-looking behavior. We test our theory through a field experiment in which we vary the sales force compensation scheme of a major retail chain in Sweden. We find that shifting to a temporally more frequent quota plan leads to an increase in sales performance for low-performing salespeople by preventing them from giving up in the later periods within a quota evaluation cycle. However, we find little evidence of improvement in productivity for high-performing salespeople. In addition, we find no effects in product returns with regard to a change in quota frequency. With quotas set over shorter time horizons, the high-performing salespeople focus mainly on low-ticket products, resulting in a decrease in both sales volume and the sale of high-ticket products, thus reducing the firm’s profits

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How Much Does Your Boss Make? The Effects of Salary Comparisons

By: Cullen, Zoë B., and Ricardo Perez-Truglia

Abstract— We study how employees learn about the salaries of their peers and managers and how their beliefs about those salaries affect their own behavior. We conducted a field experiment with a sample of 2,060 employees from a multi-billion dollar corporation. We combine rich data from surveys and administrative records with data from the experiment, which provided some employees with accurate information about the salaries of others. First, we document large misperceptions about salaries and identify some of their sources. Second, we find that perceived peer and manager salaries have a significant causal effect on employee behavior. These effects are different for horizontal and vertical comparisons. While higher perceived peer salary decreases effort, output, and retention, higher perceived manager salary has a positive effect on those same outcomes. We provide suggestive evidence for the underlying mechanisms. We conclude by discussing implications for pay inequality and pay transparency

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Digitizing Disclosure: The Case of Restaurant Hygiene Scores

By: Dai, Weijia (Daisy), and Michael Luca

Abstract— Collaborating with Yelp and the City of San Francisco, we revisit a canonical example of quality disclosure by evaluating and helping to redesign the posting of restaurant hygiene scores on We implement a two-stage intervention that separately identifies consumer response to information disclosure and to disclosure design with improved salience. We find that posting hygiene scores on restaurants’ Yelp pages leads to a 12% decrease in purchase intentions for restaurants with low scores (as predefined by the City) relative to those with higher scores. We then create a “hygiene alert”—a message that appears only for low-score restaurants identified by the City as having “poor” operating conditions with “high-risk” hygiene violations (using the same low score threshold as above)—and find a further 7% decrease in purchase intentions. Moreover, the presence of an alert reduces the restaurant’s likelihood of getting a second alert. We conclude that disclosure policy should focus not only on what information to disclose, but also on how and where to design disclosure

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Investing Outside the Box: Evidence from Alternative Vehicles in Private Capital

By: Lerner, Josh, Jason Mao, Antoinette Schoar, and Nan R. Zhang

Abstract— This paper undertakes a comprehensive analysis of alternative investment vehicles in private equity, using unexplored custodial data about 112 limited partners over four decades. We differentiate between alternative vehicles that are GP directed versus those where the LP has some discretion. Of the roughly 5,500 distinct investments made by the LPs in our sample, 32% of investments (17% of capital commitments) were in such alternative vehicles; the allocation increased by more than 10 percentage points over the last decade. Alternative vehicles were far more likely to be offered by larger and North America–based buyout funds. The average performance of these alternative vehicles lagged that of the GPs’ corresponding main funds. The best LP performance was among endowments, private pensions, and insurers. Finally, LPs with better past performance invested in alternative vehicles with better performance, even after conditioning on the GPs’ past records. This result suggests that bargaining between GPs and LPs leads to gradation in investment performance based on the parties’ outside options

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Some Facts of High-Tech Patenting

By: Webb, Michael, Nick Short, Nicholas Bloom, and Josh Lerner

Abstract— : Patenting in software, cloud computing, and artificial intelligence has grown rapidly in recent years. Such patents are acquired primarily by large U.S. technology firms such as IBM, Microsoft, Google, and HP, as well as by Japanese multinationals such as Sony, Canon, and Fujitsu. Chinese patenting in the U.S. is small but growing rapidly and world-leading for drone technology. Patenting in machine learning has seen exponential growth since 2010, although patenting in neural networks saw a strong burst of activity in the 1990s that has only recently been surpassed. In all technological fields, the number of patents per inventor has declined near-monotonically, except for large increases in inventor productivity in software and semiconductors in the late 1990s. In most high-tech fields, Japan is the only country outside the U.S. with significant U.S. patenting activity; however, whereas Japan played an important role in the burst of neural network patenting in the 1990s, it has not been involved in the current acceleration. Comparing the periods 1970–89 and 2000–15, patenting in the current period has been primarily by entrant assignees, with the exception of neural networks

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  • Harvard Business School Case 718-497

Earlham College Basketball: Turnaround Strategy

: Earlham College in Richmond, Indiana, is in the heart of basketball country. Yet its record for the 2013/2014 basketball season was a dismal 5–20. The school recruited Jason Polykoff from the University of Pennsylvania’s coaching staff to reinvent the program. By summer, Polykoff learned that only three players would be returning. That left him with a major decision: scramble to recruit enough players to fill the roster and play the 2014/2015 season, or forfeit the season and devote time to building the 2015/2016 roster. Each option would have a major detrimental impact in his ability to recruit in the future

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  • Harvard Business School Case 518-086

The Art and Science of Brand Valuation

Brand valuation, the art and science of calculating the economic value accruing to a firm from its use of an intangible brand asset, yields frustratingly inconsistent, discrepant, and, therefore, controversial results. While it is widely accepted that brands are long-lived assets that can contribute significant value to firms over time, there is no consensus on how to value them. This note outlines several different methods for valuing brands and exposes readers to the commercial methods most used by firms. It discusses the opportunities associated with valuing brands as well as the challenges

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  • Harvard Business School Case 518-044

Brandless: Disrupting Consumer Packaged Goods

Brandless, an online direct-to-consumer seller of upscale private-label consumer packaged goods, offered consumers a limited assortment of values-conscious products delivered directly to their homes with the simplicity of one fixed $3 price point that promised an average savings of 40% versus national brands through the elimination of the BrandTax, the hidden costs the company claimed consumers paid for a national brand. As the venture-funded startup entered the fiercely competitive CPG industry, it was simultaneously taking on both the world's greatest brands and the world's most dominant retailers. Could Brandless change the way consumers bought the essential items that filled their pantries and medicine cabinets? Industry pundits had long predicted both the death of brands and the death of brick and mortar retailing in the contemporary marketplace. Would Brandless be the final nail in the coffin?

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  • Harvard Business School Case 418-011

Kids & Company: Entering the U.S.

: In April 2017, Victoria Sopik and Jennifer Nashmi, CEO and CFO (respectively) of Kids & Company, a Canadian childcare provider that they had co-founded in the early 2000s and developed into a nearly 100-unit enterprise, are discussing how the company should proceed with its planned U.S. expansion. Kids & Company already has five U.S. childcare centers in and around Chicago, Illinois, and one under construction in Boston, Massachusetts, but before going any further, the two leaders plan to discuss what they have learned so far from their U.S. experience and how that should inform their strategic growth decisions moving forward. Unlike Canada, the U.S. already has other large, for-profit childcare providers, so Kids & Company will have to grow in a more mature market, albeit one where Kids & Company’s leaders still see substantial opportunity. Company leaders also believe that the company’s “boutique” childcare centers, which maintain a strict focus on customer service and flexible childcare options, would be well-received by U.S. consumers and help it stand out from the existing, more-standardized options. The question now is how, and how fast, to grow. Should it just replicate the exact model it has developed in Canada—which has proven somewhat challenging thus far in the few years it has operated in the U.S.—or adjust elements of its model? Should it look to acquire established providers or possibly even franchise the brand?

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  • Harvard Business School Case 718-051

KT Corporation in the New Energy Market

No abstract available

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  • Harvard Business School Case 816-074

InsightSquared: Developing the Sales and Marketing Plan

Fred Shilmover and Sam Clemens prepared for their fourth quarter board meeting. They were excited to have scaled their software startup, InsightSquared, to $2 million in revenue and secured an $8 million round of venture capital. However, they disagreed on the path ahead, specifically on the sales and marketing plan. Shilmover preferred a sales-centric approach to growth while Clemens preferred a marketing-centric one. Which strategy was optimal for their venture’s next phase of growth

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