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    New Research and Ideas, December 18, 2018

    First Look

    18 Dec 2018

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

    The Orphan Drug Act impacts product development

    The profit-maximizing price of new orphan drugs appears to be greater today than it was when the Orphan Drug Act was adopted 35 years ago. Writing a chapter for the book Innovation Policy and the Economy, Amitabh Chandra, Ariel Dora Stern, and colleagues ask: Does the act encourage the development of products that might otherwise never have been brought to market—or not? The Orphan Drug Act at 35: Observations and an Outlook for the Twenty-First Century.

    Go team! How team learning spurs firm success

    A team-based approach focused on team learning in the workplace encourages managers to use their cognitive abilities, which can result in sustained innovation and superior firm performance, say Amy C. Edmondson, Jean-Francois Harvey, and Henrik Bresman in a new working paper. Team Learning Capabilities: A Meso Model of Sustained Innovation and Superior Firm Performance.

    The rise of OYO Rooms in India

    As founder and CEO of India-based online hotel branding network OYO Rooms, 24-year-old Ritesh Agarwal worked on branding 8,500 properties in 200 cities, capturing 1.5 percent of India’s budget hotel market. In a recent case, Das Narayandas, Sunil Gupta, and colleagues write that OYO is now looking to convert corporate spaces and homes into accommodation spaces nationwide. OYO: Creating Effective Spaces.

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

    —Dina Gerdeman
    LinkedIn
    Email
    • 2018
    • Innovation Policy and the Economy

    The Orphan Drug Act at 35: Observations and an Outlook for the Twenty-First Century

    By: Bagley, Nicholas, Benjamin Berger, Amitabh Chandra, Craig Garthwaite, and Ariel Dora Stern

    Abstract—On the 35th anniversary of the adoption of the Orphan Drug Act (ODA), we describe the enormous changes in the markets for therapies for rare diseases that have emerged over recent decades. The most prominent example is the fact that the profit-maximizing price of new orphan drugs appears to be greater today than it was in 1983. All else being equal, this should reduce the threshold for research and development (R&D) investment in an economically viable product. Further, the small size of patient populations for orphan drugs, together with the increasing prevalence of biologics among orphan drugs, have created a set of natural monopoly-like markets in which firms face little competition, even after the end of formal periods of patent protection and market exclusivity. Additionally, the evolving technologies of drug development—in particular, the increasingly common use of auxiliary endpoints in clinical trials and the use of biomarkers for patient selection for treatment—now allow manufacturers to target smaller populations. Taken together, these changes raise doubts about whether the ODA encourages the development of products that otherwise would not have been brought to market—or whether, instead, it simply rewards the producers of inframarginal products. After presenting empirical support for our claims of an evolving marketplace, we discuss the tradeoffs associated with reshaping the ODA for the 21st century.

    Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=55381

    • in press
    • Journal of Experimental Psychology: General

    Mitigating Malicious Envy: Why Successful Individuals Should Reveal Their Failures

    By: Brooks, Alison Wood, Karen Huang, Nicole Abi-Esber, Ryan W. Buell, Laura Huang, and Brian Hall

    Abstract—People often feel malicious envy, a destructive interpersonal emotion, when they compare themselves to successful peers. Across three online experiments and a field experiment of entrepreneurs, we identify an interpersonal strategy that can mitigate feelings of malicious envy in observers: revealing one’s failures. Despite a general reluctance to reveal one’s failures—as they are happening and after they have occurred—across four experiments, we find that revealing both successes and failures encountered on the path to success (compared to revealing only successes) decreases observers’ malicious envy. This effect holds regardless of the discloser’s status and cannot be explained by a decrease in perceived status of the individual. Then, in a field experiment at an entrepreneurial pitch competition, where pride displays are common and stakes are high, we find suggestive evidence that learning about the failures of a successful entrepreneur decreases observers’ malicious envy while increasing their benign envy in addition to decreasing their perceptions of the entrepreneur’s hubristic pride (i.e., arrogance) while increasing their perceptions of the entrepreneur’s authentic pride (i.e., confidence). These findings align with previous work on the social-functional relation of envy and pride. Taken together, our results highlight how revealing failures encountered on the way to success can be a counterintuitive yet effective interpersonal emotion regulation strategy.

    Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=55396

    • forthcoming
    • Journal of Accounting Research

    Consequences of Debt Forgiveness: Strategic Default Contagion and Lender Learning

    By: Pérez Cavazos, Gerardo

    Abstract—I use a unique data set of loans to small business owners to examine whether lenders face adverse consequences when they grant debt forgiveness to borrowers. I provide evidence consistent with borrowers communicating their debt forgiveness to other borrowers, who then more often strategically default on their own obligations. This strategic default contagion is economically large. When the lender doubles debt forgiveness, the default rate increases by 10.9% on average. Using an exogenous shock to the lender's forgiveness policy, my findings suggest that as the lender learns about the extent of borrower communication, the lender tightens its debt forgiveness policy to mitigate default contagion.

    Publisher's link: https://www.hbs.edu/faculty/Pages/item.aspx?num=55389

    Team Learning Capabilities: A Meso Model of Sustained Innovation and Superior Firm Performance

    By: Harvey, Jean-François, Henrik Bresman, and Amy C. Edmondson

    Abstract—This paper complements the manager-centered analysis of dynamic capabilities with a team-based approach focused on team learning. We argue that team learning capabilities intertwine with managerial cognitive capabilities to support the processes of sensing, seizing, and reconfiguring. We draw from the literature on team learning to develop four categories based on the orientation (exploration/exploitation) and locus (internal/external) of learning in teams: reflexive, experimental, contextual, and vicarious learning. We integrate these categories into the dynamic capabilities framework to show their particular relevance at different points along the sensing-seizing-reconfiguring pathway and assess their potential impact on innovation and strategic change. The framework contributes by adding a meso lens to research on dynamic capabilities to help scholars better understand how learning that occurs in teams may support entrepreneurial managers in enacting their cognitive capabilities in service of sustained innovation and superior firm performance.

    Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=55388

    Product Quality and Entering Through Tying: Experimental Evidence

    By: Kim, Hyunjin, and Michael Luca

    Abstract—Dominant platform businesses often develop products in adjacent markets to complement their core business. One common approach used to gain traction in these adjacent markets has been to pursue a tying strategy. For example, Microsoft pre-installed Internet Explorer into Windows, and Apple set Apple Maps as the iOS default. Policymakers have raised concerns that dominant platforms may be leveraging their market power to gain traction for lower quality products when they use a tying strategy. In this paper, we empirically explore this question by examining Google’s decision to tie its new reviews product to its search engine. We experimentally vary the reviews displayed above Google’s organic search results to show either exclusively Google reviews (Google’s current tying strategy) or reviews from multiple platforms determined to be the best-performing by Google’s own organic search algorithm. We find that users prefer the version that does not exclude competitor reviews. Furthermore, looking at observational data on user traffic to Yelp from search engines, we find that Google’s exclusion of downstream competitors may have been effective. The share of Yelp’s traffic coming from Google has declined over this period, relative to traffic from Bing and Yahoo (which do not exclude other companies’ reviews), and Google reviews has grown quicker than Yelp and TripAdvisor during the period in which they excluded these (and other) reviews providers. Overall, these results shed light on platform strategy: tying has the potential to facilitate entry in complementary markets, even when the tied product is of worse quality than competitors.

    Download working paper: https://www.hbs.edu/faculty/Pages/item.aspx?num=55176

    Find and Replace: R&D Investment Following the Erosion of Existing Products

    By: Krieger, Joshua, Xuelin Li, and Richard T. Thakor

    Abstract—How do R&D-intensive firms react to negative shocks to their existing products? We explore this question using detailed project-level data from drug development firms. Using FDA Public Health Advisories as an exogenous and idiosyncratic negative shock to approved drugs, we examine how firms and their competitors react in terms of their R&D investment and financing decisions. We document that these negative shocks lead affected firms to increase R&D expenditures, which they finance with debt. In terms of investment behavior, these shocks increase the likelihood of affected firms acquiring drug projects from other firms, rather than developing new projects internally. Examining the channels behind this increase in R&D in-licensing, we explore heterogeneity in treatment effects and competitor spillovers. We find that competitors move resources away from affected therapeutic areas and into more exploratory projects, after indirectly experiencing these shocks. Rather than turning to external acquisitions, these competing firms appear to reshuffle their own drug portfolios—moving resources away from the affected therapeutic area and into more exploratory projects.

    • Harvard Business School Case 519-011

    Hubble Contact Lenses: Data Driven Direct-to-Consumer Marketing

    As its Series A extension round approaches, the founders of Hubble, a subscription-based, social-media fueled, direct-to-consumer (DTC) brand of contact lenses, are reflecting on the marketing strategies that have taken them to a valuation of $200 million and debating changes to them that will allow them to grow their business. Ensuring that their marketing dollars were being spent efficiently was critical to the data-driven management team and proving to be complicated as the company moved spending from digital marketing to offline media, which made attribution modeling more difficult. Decisions pertaining to product extensions, channel expansion beyond DTC e-commerce, and geographic expansion were also on the table to prove that Hubble's customer value proposition and operations could profitably scale.

    Purchase this case:
    https://hbsp.harvard.edu/product/519011-PDF-ENG

    • Harvard Business School Case 119-027

    Fundraising at St. Camillus Hospital

    St. Camillus is a fictional non-profit hospital in rural Maine facing a serious budget deficit. As Director of Marketing, Victoria Stern is building a team to modernize the hospital fundraising efforts. An interview with a promising candidate, who is also a digital native, forces her to confront shifting attitudes toward issues of data and privacy across generations against the backdrop of continued cybercrime and data breaches within the healthcare industry. Students grapple with the tension between data as "useful" or private within an organization. In this context they explore the ethical issues they will face around data security and data governance in their roles as managers.

    Purchase this case:
    https://hbsp.harvard.edu/product/119027-PDF-ENG

    • Harvard Business School Case 118-017

    Royal Philips: Designing Toward Profound Change

    This case explores Royal Philips CEO Frans van Houten's bold use of design research to inform a critical strategic decision: Should Philips leave its storied lighting business behind in favor of complete focus on health technology and consumer lifestyle products? Philips sent teams of designers, engineers, and consultants into hospitals and clinics to interview patients and a range of providers, from clinicians to administrators and other staff. These teams generated a range of insights about how Philips products were experienced in the field that provoked many important questions. Could Philips improve its offerings by conceptualizing patient journeys through a health continuum? Could it forge new relationships with customers to create more value over time? What organizational changes would be required to support customer-facing innovations that drew on components from different Philips business units? Students discuss the merits of using this qualitative, design-based research to inform strategy in the face of traditional financial analyses that suggest no clear strategic choice.

    Purchase this case:
    https://hbsp.harvard.edu/product/118017-PDF-ENG

    • Harvard Business School Case 818-068

    Impact Investing for Cancer

    It is early 2018, and Emily Park, managing director of impact for the Abreu Family Office, is meeting the next day with Tomás and Maria Abreu to discuss the various ways in which the Abreus can allocate a planned $100 million to make a meaningful difference in cancer patients’ lives. Park has spent the past few months working on this project and has uncovered a multitude of options, from supporting high-performing disease-focused organizations through venture philanthropy; to investing in a fund or directly into ventures and possibly earning a good return on investment in the process; to helping address system-wide issues such as the better organization and funding of clinical trials. As she prepares to present her findings to the Abreus, she wonders which one(s) will spark their interest as the way to have the most meaningful impact, and what implications their ultimate decision will have on the Family Office in terms of its capital outlays, structure, staffing, and many other categories.

    Purchase this case:
    https://hbsp.harvard.edu/product/818068-PDF-ENG

    • Harvard Business School Case 119-030

    Fair Value Accounting at Berkshire Hathaway Inc.

    In May 2018, Berkshire Hathaway announced an unprecedented loss of more than $1 billion for the first quarter of 2018. Warren Buffett blamed this loss on the new accounting rules for equity securities that he criticized. In the case “Fair Value Accounting at Berkshire Hathaway, Inc.” students will evaluate the impact of a new rule related to the fair value accounting as it pertains to Berkshire Hathaway and Alphabet. Students will debate the topic of relevance and reliability in fair value accounting as compared to historical cost accounting and discuss the intended purposes of the balance sheet and income statement (with particular attention to net income). Students will also have a chance to review the business model of Berkshire Hathaway to debate how to measure and report the economic performance of Berkshire Hathaway.

    Purchase this case:
    https://hbsp.harvard.edu/product/119030-PDF-ENG

    • Harvard Business School Case 219-040

    Granite Equity Partners

    No abstract available.

    Purchase this case:
    https://hbsp.harvard.edu/product/219040-PDF-ENG

    • Harvard Business School Case 818-108

    GoFundMe: The Giving Layer of the Internet

    By 2017, GoFundMe is the world’s largest social fundraising platform. Gross donation volume is growing rapidly, yet the number of monthly campaign starts is relatively flat. The CEO contemplates a variety of growth initiatives.

    Purchase this case:
    https://hbsp.harvard.edu/product/818108-PDF-ENG

    • Harvard Business School Case 319-032

    Ce Soir-Là, Ils n'Arrivent Plus Un par Un, Mais par Vagues: Coping with the Surge of Trauma Patients at L'Hôpital Universitaire La Pitié Salpêtrière—Friday, November 13, 2015

    On November 13, 2015, Dr. Marie Borel, Dr. Emmanuelle Dolla, Dr. Frédéric Le Saché, and Professor Mathieu Raux were the doctors in charge of the trauma center at L’Hôpital de la Pitié Salpêtrière in Paris, where dozens of wounded and dying patients, most with severe gunshot wounds from military grade firearms, arrived in waves after a series of terrorist attacks across the city. The doctors had trained for a mass-casualty event but had never envisioned the magnitude of what they now saw. This case describes how they rapidly expanded the critical care capacity available so as to be able to handle the unexpectedly large number of patients arriving at their doors.

    Purchase this case:
    https://hbsp.harvard.edu/product/319032-PDF-ENG

    • Harvard Business School Case 719-403

    Accomplice: Scaling Early Stage Finance

    Accomplice, an early-stage venture capital firm based in Boston, is raising its second fund in November 2017. Since 2009, the firm has followed a seed-led investment model, investing in tech companies at the earliest stages, often when products and business models are still experimental. The firm’s partners are pleased with their preliminary returns and the deal flow they’ve been able to cultivate, in part by empowering local entrepreneurs to invest in promising new ideas on their behalf. The partners are confident their long-term returns will validate their investment strategy and positioning in the increasingly competitive VC market. Will investors agree?

    Purchase this case:
    https://hbsp.harvard.edu/product/719403-PDF-ENG

    • Harvard Business School Case 519-023

    OYO: Creating Effective Spaces

    Twenty-four-year old Ritesh Agarwal, founder and CEO of India-based online hotel branding network OYO Rooms, has tackled the issue of unreliability in India's highly fragmented budget hotel industry. In 2018, OYO branded 8,500 properties across 200 cities and managed to capture almost 1.5% of India's budget hotel market. Ritesh believes that in the process, OYO has honed technological skills and infrastructural capabilities that can transform the company from being a technology player to a hotel developer. OYO now aspires to convert corporate spaces and homes into accommodation spaces and to make its mark worldwide.

    Purchase this case:
    https://hbsp.harvard.edu/product/519023-PDF-ENG

    • Harvard Business School Case 518-063

    Measuring True Value at Ambuja Cement

    The case discusses the measurement of social and environmental impact at Ambuja Cements, one of India’s leading cement companies. Ambuja is a leader in CSR activities and is attempting to quantify its impact, both positive and negative, using the “True Value” framework developed by the global accounting firm KPMG. True Value is an innovation in this area and tries to measure the financial cost and benefits of social and environmental impact and provide a standardized comparison across different kinds of social and environmental activities and their impact. The case allows students to discuss the challenges in measuring social and environmental impact and the pros and cons of quantifying the same in financial terms. The case elicits discussion surrounding the following questions: How do we develop a framework to measure the financial cost and benefits of social and environmental externalities? What are the challenges of doing so? What do we need to do to improve our ability to measure social and environmental impact in financial terms? How will such measurement be useful? Who will it be useful to? The case concludes with the CEO of Ambuja deciding whether or not to publicly release the “True Value” of the company.

    Purchase this case:
    https://hbsp.harvard.edu/product/518063-PDF-ENG

    • Harvard Business School Case 119-044

    JetBlue: Relevant Sustainability Leadership (B)

    Supplements the (A) case.

    Purchase this case:
    https://hbsp.harvard.edu/product/119044-PDF-ENG

    • Harvard Business School Case 919-014

    Verisk: Trailblazing in the Big Data Jungle

    This case revolves around Verisk Analytics' initiatives to drive innovation throughout the firm's many business verticals. Verisk, originally named ISO, started life as an insurance rating agency in the early 1970s, acting as an intermediary between insurance companies and state governments. Over time, the firm transformed from being a non-profit to a for-profit entity, while expanding its lines of business to realms other than insurance. By both exploring the history of the insurance industry and Verisk's unique position within it, the case provides readers with an understanding of the firm's growth strategy and why innovation is so crucial for its success. The case leaves readers to ponder Verisk's innovation and growth strategy, challenging them to assess its strengths and weaknesses.

    Purchase this case:
    https://hbsp.harvard.edu/product/919014-PDF-ENG

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