First Look

August 14, 2018

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

Vote for me!

Inviting customers to vote on your products can generate a big marketing win—or create unintended consequences. Research by Tami Kim, Leslie John, Todd Rogers, and Michael I. Norton offers insight into how firms can realize the benefits of empowerment strategies while mitigating their risks. Procedural Justice and the Risks of Consumer Voting.

Why are US central cities in such rough shape?

Is racial heterogeneity responsible for the distressed financial conditions of US central cities and for their limited ability to provide even basic public goods? Research by Marco Tabellini. Racial Heterogeneity and Local Government Finances: Evidence from the Great Migration.

Shifting into high gear at Shift Technologies

Shift, an online auto marketplace that uses a high-touch approach to buy and sell used cars, is considering expansion. Should it outsource management of inspections and repairs, although customers love the experience in-house? Shift Technologies, Inc.

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

by Sean Silverthorne

Abstract—The Fearless Organization offers practical guidance for teams and organizations that are serious about success in the modern economy. With so much riding on innovation, creativity, and spark, it is essential to attract and retain quality talent—but what good does this talent do if no one is able to speak their mind? The traditional culture of “fitting in” and “going along” spells doom in the knowledge economy. Success requires a continuous influx of new ideas, new challenges, and critical thought, and the interpersonal climate must not suppress, silence, ridicule, or intimidate. Not every idea is good, and yes there are stupid questions, and yes dissent can slow things down, but talking through these things is an essential part of the creative process. People must be allowed to voice half-finished thoughts, ask questions from left field, and brainstorm out loud; it creates a culture in which a minor flub or momentary lapse is no big deal, and where actual mistakes are owned and corrected, and where the next left-field idea could be the next big thing. This book explores this culture of psychological safety and provides a blueprint for bringing it to life. The road is sometimes bumpy, but succinct and informative scenario-based explanations provide a clear path forward to constant learning and healthy innovation.

Publisher's link:

  • in press
  • Management Science

Procedural Justice and the Risks of Consumer Voting

By: Kim, Tami, Leslie John, Todd Rogers, and Michael I. Norton

Abstract—Firms are increasingly giving consumers the vote. Eight studies demonstrate that when firms empower consumers to vote, consumers infer a series of implicit promises—even in the absence of explicit promises. We identify three implicit promises to which consumers react negatively when violated: representation (Experiments 1A–1C); consistency (Experiment 2), and non-suppression (Experiment 3). However, when firms honor these implicit promises, voting can mitigate the disappointment that arises from receiving an undesired outcome (Experiment 4). Finally, Experiment 5 identifies one instance when suppressing the vote outcome is condoned: when voters believe that the process of voting has resulted in an unacceptable outcome. More generally, we show that procedural justice plays a key mediating role in determining the relative success or failure of various empowerment initiatives—from soliciting feedback to voting. Taken together, we offer insight into how firms can realize the benefits of empowerment strategies while mitigating their risks.

Publisher's link:

  • forthcoming
  • Journal of Experimental Psychology: General

Pettiness in Social Exchange

By: Kim, Tami, Ting Zhang, and Michael I. Norton

Abstract—We identify and document a novel construct—pettiness, or intentional attentiveness to trivial details—and examine its (negative) implications in interpersonal relationships and social exchange. Seven studies show that pettiness manifests across different types of resources (both money and time), across cultures with differing tolerance for ambiguity in relationships (the United States, Switzerland, Germany, and Austria), and is distinct from related constructs such as generosity, conscientiousness, fastidious, and counter-normativity. Indeed, people dislike petty exchanges even when the (petty) amount given is more generous (e.g., a gift card for $5.15 rather than $5), suggesting that pettiness may in some instances serve as a stronger relationship signal than actual benefits exchanged. Attentiveness to trivial details of resource exchanges harms communal-sharing relationships by making (even objectively generous) exchanges feel transactional. When exchanging resources, people should be wary of both how much they exchange and the manner in which they exchange.

Publisher's link:

  • in press
  • Journal of Positive Psychology

Preferences for Experienced Versus Remembered Happiness

By: Mogilner, Cassie, and Michael I. Norton

Abstract—Consider two types of happiness: one experienced on a moment-to-moment basis, the other a reflective evaluation where people feel happy looking back. Though researchers have measured and argued the merits of each, we inquired into which happiness people say they want. In five studies (N = 3351), we asked people to choose between experienced happiness and remembered happiness—for shorter time frames (e.g., one’s next hour) and longer time frames (e.g., one’s lifetime). The results revealed a consistent pattern: most people choose experienced happiness for longer time frames but not for shorter time frames. Since people typically live hour-to-hour, these findings imply that people may end up living a different version of happiness than what they believe is a happy life.

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Abstract—Market imperfections are central to understanding the mechanisms that permit firms to capture value. Many of these imperfections are competed away when firms struggle to attain and defend competitive advantages, making markets more efficient in the process. The remaining imperfections can become a primary impetus for government intervention. Hence, an understanding of residual market imperfections—those imperfections that persist after market competition and regulation are accounted for—must inform any assessment of the long-term attractiveness of firm strategies. Our framework provides an integrated view of competition and government intervention, two of the principal forces that influence variation in firm profitability.

Publisher's link:

  • forthcoming
  • Journal of Economics & Management Strategy

Friends or Foes? Examining Platform Owners’ Entry into Complementors’ Spaces

By: Zhu, Feng

Abstract—As platform owners continue to expand their ecosystems, many of them have started to provide consumers with their own complementary applications. These moves position the platform owners as direct competitors to their complementors. This paper surveys empirical studies that examine the direct entry of platform owners into complementors’ product spaces. It finds that both the motivation and impact of such entries on complementors are multifaceted. The motivation behind platform owners’ direct entry goes beyond value capture, and the impact of platform entry on complementors varies across empirical settings. It identifies several future research directions that can help advance our understanding of the relationships between platform owners and complementors.

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Abstract—We study the impact of Quickpay, a federal reform that indefinitely accelerated payments to small business contractors of the U.S. government. We find a strong direct effect of the reform on employment growth at the firm level. Importantly, however, we also document substantial crowding out of non-treated firms' employment within local labor markets. While the overall net employment effect was positive, it was close to zero in tight labor markets—where crowding out was stronger. Our results highlight an important channel for alleviating financing constraints in small firms but also emphasize the general-equilibrium effects of large-scale interventions, which can lead to lower aggregate outcomes depending on labor market conditions.

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Happily Ever After: Immigration, Natives' Marriage, and Fertility

By: Carlana, Michela, and Marco Tabellini

Abstract—In this paper, we study the effects of immigration on natives’ marriage, fertility, and family formation across U.S. cities between 1910 and 1930. Instrumenting immigrants’ location decision by interacting pre-existing ethnic settlements with aggregate migration flows, we find that immigration raised marriage rates, the probability of having children, and the propensity to leave the parental house for young native men and women. We show that these effects were driven by the large and positive impact of immigration on native men’s employment and occupational standing, which increased the supply of “marriageable men.” We also explore alternative mechanisms—changes in sex ratios, natives’ cultural responses, and displacement effects of immigrants on female employment—and provide evidence that none of them can account for a quantitatively relevant fraction of our results.

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Abstract—Is racial heterogeneity responsible for the distressed financial conditions of U.S. central cities and for their limited ability to provide even basic public goods? If so, why? I study these questions in the context of the first wave of the Great Migration (1915–1930), when more than 1.5 million African Americans moved from the South to the North of the United States. Black inflows and the induced white outflows ("white flight") are both instrumented for using, respectively, pre-migration settlements and their interaction with MSA geographic characteristics that affect the cost of moving to the suburbs. I find that black in-migration imposed a strong, negative fiscal externality on receiving places by lowering property values and, mechanically, reducing tax revenues. Unable or unwilling to raise tax rates, cities cut public spending, especially in education, to meet a tighter budget constraint. While the fall in tax revenues was partly offset by higher debt, this strategy may, in the long run, have proven unsustainable, contributing to the financially distressed conditions of several U.S. central cities today.

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  • Harvard Business School Case 518-047

Armarium: Luxury Fashion Brands for Rent

Armarium, a two-sided online platform that offered consumers the opportunity to rent the most coveted, current season high fashion clothing and accessories from the top global luxury brands, had emerged from its first sales season with two distinct customer segments: the High Net Worth (HNW) woman and the High Earner, Not Rich Yet (HENRY) woman. As it began to scale its operations, it had to decide which customer segment was the more desirable target market and how to refine the company's value proposition to maximize value creation for both consumers and the luxury brands that supported the business model. The jury was still out on whether a rental model could attract higher income women who could afford to buy luxury brands and whether it could support the $400 rental price points Armarium would need to charge for its one-of-a-kind pieces with retail values that could reach as high as $15,000. The two founders faced significant scaling challenges, from how to establish guardrails around curation of the collection to go-to-market distribution channel strategy and customer acquisition strategy.

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  • Harvard Business School Case 818-002

Shift Technologies, Inc.

In 2017, management at Shift, an online marketplace that uses a “high touch,” concierge approach to buy and sell used cars, was formulating plans for the San Francisco–based startup’s next phase of expansion. One option was to preserve Shift’s current business model and grow through geographic expansion. Another option was to decentralize more tasks to sellers and/or buyers, for example, management of inspections and repairs. While decentralizing tasks would reduce Shift’s labor per transaction and thereby improve the venture’s unit economics and its scalability, Shift might risk undermining users’ trust by handing off responsibility for critical tasks.

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  • Harvard Business School Case 818-047

Ryan Greene at Rainier Wearables

No abstract available.

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  • Harvard Business School Case 818-022

Careem: Raising a Unicorn

This case follows two ex-McKinsey consultants, Magnus Olsson and Mudassir Sheikha, who in search of their true purpose decide to found Careem, a Dubai-based ride-hailing service. Following its launch in July 2012, Careem experiences rapid growth of 30% per month in the UAE and other countries in the MENA region, surpassing the co-founders’ expectations. However, as a result of such immense growth, the startup struggles with various operational and cultural organizational tensions. These challenges are described from the perspective of the founders and through the eyes of Deepika Thakur, one of the early employees. By 2014, in order to succeed in Saudi Arabia, the largest and most complex market in the Gulf, Olsson and Sheikha recognize the importance of finding a strong leader to head the Saudi operations. They have their sights on a specific German-Saudi entrepreneur, Abdulla Elyas, but he has so far declined both of their initial proposals to join Careem. In the backdrop, Uber has developed a successful track record in the West, raising close to $2 billion dollars globally, and has a growing presence in the UAE following its launch there in August 2013. Finding themselves at a crossroads, Olsson and Sheikha must figure out how to address several critical organizational issues, decide how to bring Elyas on board, and ensure a robust strategy to maintain its leadership position in the region.

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  • Harvard Business School Case 818-059

Spark Therapeutics: Pioneering Gene Therapy

Spark Therapeutics is a pioneering gene therapy startup. It was spun out of The Children’s Hospital of Philadelphia (CHOP). The company had taken with it much of the intellectual property and talent that CHOP had developed and is considering an initial public offering. In addition, several large pharma companies have expressed interest in partnering with Spark to develop its hemophilia B program. Also, the company is working with the FDA on a potential change to its protocol. The CEO is preparing for a board meeting, and he is contemplating the best path to deal with these challenges and opportunities.

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  • Harvard Business School Case 518-065

Adeo Health Science: Turning a Product into a Brand

For decades, American parents were warned to avoid introducing potential allergens to their babies prior to their first birthday. But two influential clinical studies caused the medical establishment to radically reverse its position. Parents were now warned that delaying the introduction of these types of foods increased a baby's risk of food allergies. Adeo Health Science was ready, with patents filed for a baby food that made it simple for parents to introduce allergens. Now, the new company had to turn its product into a brand and map its go-to-market strategy, including creating a compelling value proposition, choosing a path to market that was either direct-to-consumer, through grocery retailers, or via the physician channel, and planning its marketing communications and sales strategy. As a new startup with constrained resources, the company knew its marketing decisions would make or break the new product.

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  • Harvard Business School Case 618-023

Production Processes

This note describes four broad categories of process architectures and then examines the nature of task assignment that typically would be found in a factory organized along the lines of each process type. It then delves more deeply into work flow policies, materials handling, and line pacing for the assembly line, since this process architecture is so widely used for the mass production of everything from smartphones to automobiles.

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