First Look

Abstract—We conduct a field experiment in which we vary the sales force compensation scheme at an Asian enterprise that sells consumer durable goods. With variation generated by the experimental treatments, we model sales force performance to identify the effectiveness of various forms of conditional and unconditional compensation. We account for salesperson heterogeneity by using a hierarchical Bayesian framework to estimate our model. We find conditional compensation in the form of quota-bonus incentives to improve performance; however, it may lead to lower future performance. We find little evidence that effectiveness differs between a quota-bonus plan and a punitive-bonus plan framed as a penalty for not achieving quota. We find unconditional compensation in the form of reciprocity to be effective at improving sales force performance only when given as a delayed reward of which the effectiveness decreases with repeated exposure. We also find heterogeneity in the impact of compensation on performance across salespeople; unconditional compensation is more effective for salespeople with high base performance, whereas conditional compensation is equally effective across all types of salespeople.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51539

Abstract—Previous research often interprets the choice to restrict one’s future opportunity set as evidence for sophisticated time inconsistency. We propose an additional mechanism that may contribute to the demand for commitment technology: the desire to signal to others. We present a field experiment where participants can choose to give up money if they do not follow through with an action. When commitment choices are made public rather than kept private, we find significantly higher uptake rates.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51552

Abstract—We study the impact of social identity on worker competition by exploiting the well-documented social divide between urban resident workers and rural migrant workers in urban Chinese firms. We analyze data on weekly output, individual characteristics, and coworker composition for all weavers in an urban Chinese textile firm during a 53-week period. The firm adopts relative performance incentives in addition to piece rates to encourage competition in the workplace. We find that social identity has a significant impact on competition: a weaver only competes against coworkers with a different social identity, but not against those sharing her own identity. The results are mainly driven by urban weavers competing aggressively against rural coworkers. Our results highlight the important role of social identity in mitigating or enhancing competition.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51570

Abstract—We highlight recent research examining how people should manage their most precious resources—time and money—to maximize their happiness. Contrary to people’s intuitions, happiness may be less contingent on the sheer amount of each resource available and more on how people both think about and choose to spend those resources. Overall, focusing on time leads to greater happiness than focusing on money. Moreover, people enjoy greater happiness from spending money on others rather than themselves and from acquiring experiences instead of possessions. Similarly, people enjoy greater happiness from spending time on or with others and from acquiring experiences—both extraordinary and ordinary.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51544

Abstract—In 2014, The University of Texas MD Anderson Cancer Center created a streamlined process for developing measure sets for patient-centered outcomes, including provider-generated and patient-reported outcomes, at an accelerated pace. These comprehensive sets are integrated with electronic health records and incorporated into clinical practice, and they will underpin internal quality improvement and external benchmarking efforts.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51574

Abstract—We provide a quantitative analysis of fiscal rules in a standard model of sovereign debt accumulation and default modified to incorporate quasi-hyperbolic preferences. For reasons of political economy or aggregation of citizens’ preferences, government preferences are present biased, resulting in an over accumulation of debt. Calibrating this parameter with values in the literature, the model can reproduce debt levels and frequency of default typical of emerging markets even if the household impatience parameter is calibrated to local interest rates. A quantitative exercise calibrated to Brazil finds welfare gains of the optimal fiscal policy to be economically substantial, and the optimal rule to not entail a countercyclical fiscal policy. A simple debt rule that limits the maximum amount of debt is analyzed and compared to a simple deficit rule that limits the maximum amount of deficit per period. Whereas the deficit rule does not perform well, the debt rule yields welfare gains virtually equal to the optimal rule.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50545

Abstract—We present a model of credit market sentiment in which investors form beliefs about future creditworthiness by extrapolating past defaults. Our key contribution is to model the endogenous two-way feedback between credit market sentiment and credit market outcomes. This feedback arises because investors’ beliefs depend on past defaults, but beliefs also drive future defaults through investors’ willingness to refinance debt at low interest rates. Our model is able to capture many documented features of credit booms and busts, including the link between credit growth and future returns and the “calm before the storm” periods in which fundamentals have deteriorated but the credit market has not yet turned.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=51569

Abstract—Recent contributions to information systems theory suggest the primary role of a firm’s IT architecture is to facilitate agility, ensuring the continued alignment of a firm’s capabilities with a changing business environment. Despite advances in our understanding of the role of IT, however, we lack robust empirical data on the precise mechanisms by which IT architecture impacts agility. As a result, it is difficult to identify specific managerial actions that can improve a firm’s architecture and thereby lower the cost of responding to changing future demands. We address this gap in the literature by exploring the relationship between IT architecture and IT agility at the level of the individual components in the architecture. In particular, we draw upon modular systems theory to develop and test a series of propositions about the impact of component coupling on the cost of IT change. Our methods make use of “Design Structure Matrices” (DSMs), a novel network analysis technique that addresses the limitations of prior work in this area. DSMs allow us to i) identify discrete layers in the IT architecture associated with different types of components and ii) capture data on the dependencies between components, hence assessing their relative levels of coupling and position within the architecture. We test our propositions using empirical data from a large pharmaceutical firm encompassing 407 architectural components and 1,157 dependencies between them. We show that different components occupy different positions in the IT architecture and possess different levels of coupling. We find measures of coupling predict IT agility—defined as the cost of making changes to software applications. The measure of coupling that best predicts agility is one that captures all direct and indirect connections between components (i.e., it captures the potential for changes to propagate via all possible paths between components). Our results reveal that different business groups within the firm face different costs of adaptation, deepening our understanding of the roots of organizational agility.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=48540

This note profiles the role of the modern chief financial officer (CFO). It presents insights based on a variety of surveys and descriptions of HBS graduates who hold or have held the CFO role. Although the role varies significantly from one organization to another, CFOs are currently responsible for far more than tracking financial figures. The note provides basic information about the responsibilities CFOs face, the paths that lead to the CFO role, the characteristics of CFOs, the compensation of CFOs, and the kinds of things CFOs do when they leave the CFO role.

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This case considers the entrepreneurial career of Olivia Lum, who founded the Singaporean water company Hyflux in 1989. An orphan born in Malaysia, Lum provides a rare case of an entrepreneurial success in a country whose economic success has primarily rested on state-owned and foreign firms. The case describes the formidable challenges she initially faced, her subsequent breakthrough in China, and the subsequent growth as a global water treatment company employing membrane technology. In 2004 the company entered the large Middle Eastern market for water treatment but soon encountered problems, including political turbulence. The case ends with demonstrations and an emergent crisis in Libya in 2011, a country in which Hyflux had recently invested. The case offers opportunities to explore the nature of entrepreneurship in Southeast Asia, the business importance of relationships between overseas Chinese and mainland China, and the challenges faced by female entrepreneurs. More broadly, it serves as vehicle for teaching students about the global water crisis and the role of business in helping to resolve it.

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It is 2014, and AnswerDash, a startup backed by venture capital, has not seen the widespread adoption of their online self-service customer support solution that they were expecting based on early success in helping clients save and generate substantial amounts of money. Dr. Jacob O. Wobbrock and Dr. Andrew J. Ko are revisiting their go-to-market strategy to determine how to build a viable business out of their groundbreaking technology. The case raises issues in entrepreneurship and B2B marketing such as analyzing economic value to the customer, designing optimal price metrics, aligning pricing with marketing strategy, evaluating customer life-time value, organizational selling, and influencing innovation adoption.

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