First Look

December 5, 2017

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

Working for a wrongdoing company could hurt your future earnings

Employees who work for a company caught in financial wrongdoing might see lower paychecks from future employers—even if those employees were not implicated themselves, according to research by Boris Groysberg, Eric Lin, and George Serafeim. Does Financial Misconduct Affect the Future Compensation of Alumni Managers?

How a competitor's failure affects product plans of other players

Studying the drug industry, researcher Joshua Lev Krieger discovers that firms reassess their own product plans when a competitor exits the market, and are two times more likely to terminate projects when the exit comes from a company in the same product area. "I also find evidence that firms overreact to failure news from closely related competitor projects," Krieger writes. Trials and Terminations: Learning from Competitors' R&D Failures.

Yes, some millionaires are not as happy as richer millionaires

The rich get richer, and maybe happier, too. Michael I. Norton and colleagues report that "among millionaires, wealth may be likely to pay off in greater happiness only at very high levels of wealth, and when that wealth was earned rather than inherited. The Amount and Source of Millionaires' Wealth (Moderately) Predicts Their Happiness

Other new research publications from Harvard Business School faculty follow.

— Sean Silverthorne
 
  • forthcoming
  • New York: Dey Street Books

Rebel Talent: Why It Pays to Break the Rules at Work and Life

By: Gino, F.

Abstract—The world’s best chef. An airline captain who brought his flight to safety in a daring water landing. A magician known for his sensational escape acts. A computer scientist who founded a world-renowned animation studio. What do all of these people have in common? They love their jobs, they break the rules, and the world is better off for it. They are rebels. From an early age, we are taught to be rule followers, and the pressure to fit in only increases as we age. But conformity comes at a steep price for our careers and personal lives. When we mindlessly accept rules and norms rather than questioning and constructively rebelling against them, we ultimately end up stuck and unfulfilled. As leaders, we are less effective and respected. As employees, we are more likely to be overlooked for top assignments and promotions. As partners and friends, we are checked out and unhappy. Rebels—those who practice “positive deviance” at work—are harder to manage, but they are good for the bottom line: their passion, drive, curiosity, and creativity raise the entire organization to a new level. And at home, rebels are more engaged partners, parents, and friends. Packed with strategies for embracing rebellion at work and in life as well as illuminating case studies from a wide range of industries, Rebel Talent encourages all of us to rebel against what’s comfortable, so that we can thrive.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53562

  • forthcoming
  • Customer Needs and Solutions

In Pursuit of Enhanced Customer Retention Management: Review, Key Issues, and Future Directions

By: Ascarza, Eva, Scott A. Neslin, Oded Netzer, Zachery Anderson, Peter S. Fader, Sunil Gupta, Bruce Hardie, Aurelie Lemmens, Barak Libai, David T. Neal, Foster Provost, and Rom Schrift

Abstract—In today’s turbulent business environment, customer retention presents a significant challenge for many service companies. Academics have generated a large body of research that addresses part of that challenge—with a particular focus on predicting customer churn. However, several other equally important aspects of managing retention have not received similar level of attention, leaving many managerial problems not completely solved, and a program of academic research not completely aligned with managerial needs. Therefore, our goal is to draw on previous research and current practice to provide insights on managing retention and identify areas for future research. This examination leads us to advocate a broad perspective on customer retention. We propose a definition that extends the concept beyond the traditional binary retain/not retain view of retention. We discuss a variety of metrics to measure and monitor retention. We present an integrated framework for managing retention that leverages emerging opportunities offered by new data sources and new methodologies such as machine learning. We highlight the importance of distinguishing between which customers are at risk and which should be targeted—as they are not necessarily the same customers. We identify trade-offs between reactive and proactive retention programs, between short- and long-term remedies, and between discrete campaigns and continuous processes for managing retention. We identify several areas of research where further investigation will significantly enhance retention management.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53571

  • in press
  • Personality and Social Psychology Bulletin

The Amount and Source of Millionaires' Wealth (Moderately) Predicts Their Happiness

By: Donnelly, Grant Edward, Tianyi Zheng, Emily Haisley, and Michael I. Norton

Abstract—Two samples of more than 4,000 millionaires reveal two primary findings. First, only at high levels of wealth—in excess of $8 million (Study 1) and $10 million (Study 2)—are wealthier millionaires happier than millionaires with lower levels of wealth, though these differences are modest in magnitude. Second, controlling for total wealth, millionaires who have earned their wealth are moderately happier than those who inherited it. Taken together, these results suggest that, among millionaires, wealth may be likely to pay off in greater happiness only at very high levels of wealth, and when that wealth was earned rather than inherited.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53540

  • 2017
  • Swedish Economic Forum Report 2017: Svensk konkurrenskraft

The Swedish Competitiveness Scorecard 2017

By: Ketels, Christian H.M.

Abstract—The Swedish Competitiveness Scorecard assesses Sweden's current competitiveness across a broad range of indicators, applying an impact logic from competitiveness fundamentals to productivity and prosperity outcomes. On these indicators Sweden is compared to a peer group of other advanced EU and OECD countries. The Scorecard finds Sweden's competitiveness to be solid overall, supporting the current state of the country's prosperity. Issues are identified in the education and skill system, labor market incentives and flexibility, the ability to translate R&D outcomes into economic value creation, and in preparing the economy for the new realities of globalization. Maybe most worryingly, it finds that Swedish public policy, long a strength of the country, is increasingly failing to provide stable policy decisions addressing the issues Sweden is facing.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53584

  • October 2017
  • Review of Economics and Statistics

A Field Experiment on Search Costs and the Formation of Scientific Collaborations

By: Lakhani, Karim R., Kevin Boudreau, Tom Brady, Ina Ganguli, Patrick Gaule, Eva C. Guinan, and Anthony Hollenberg

Abstract—We present the results of a field experiment conducted at Harvard Medical School to understand the extent to which search costs affect matching among scientific collaborators. We generated exogenous variation in search costs for pairs of potential collaborators by randomly assigning individuals to 90-minute structured information-sharing sessions as part of a grant funding opportunity. We estimate that the treatment increases the probability of grant co-application of a given pair of researchers by 75%. The findings suggest that matching between scientists is subject to considerable friction, even in the case of geographically proximate scientists working in the same institutional context.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53548

  • November 14, 2017
  • Proceedings of the National Academy of Sciences of the United States of America

Handgun Waiting Periods Reduce Gun Deaths

By: Luca, Michael, Deepak Malhotra, and Christopher Poliquin

Abstract—Handgun waiting periods are laws that impose a delay between the initiation of a purchase and final acquisition of a firearm. We show that waiting periods, which create a “cooling off” period among buyers, significantly reduce the incidence of gun violence. We estimate the impact of waiting periods on gun deaths, exploiting all changes to state-level policies in the Unites States since 1970. We find that waiting periods reduce gun homicides by roughly 17%. We provide further support for the causal impact of waiting periods on homicides by exploiting a natural experiment resulting from a federal law in 1994 that imposed a temporary waiting period on a subset of states.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53537

  • in press
  • Personality and Social Psychology Bulletin

Advice Giving: A Subtle Pathway to Power

By: Schaerer, M., L.P. Tost, L. Huang, F. Gino, and R.P. Larrick

Abstract—We propose that interpersonal behaviors can activate feelings of power, and we examine this idea in the context of advice giving. Specifically, we show a) that advice giving is an interpersonal behavior that enhances individuals’ sense of power and b) that those who seek power are motivated to engage in advice giving. Four studies, including two experiments (n=290, n=188), an organization-based field study (n=94), and a negotiation simulation (n=124), demonstrate that giving advice enhances the advisor’s sense of power because it gives the advisor perceived influence over others’ actions. Two of our studies further demonstrate that people with a high tendency to seek power are more likely to give advice than those with a low tendency. This research establishes advice giving as a subtle route to a sense of power, shows that the desire to feel powerful motivates advice giving, and highlights the dynamic interplay between power and advice.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53561

Innovation, Reallocation and Growth

By: Acemoglu, Daron, Ufuk Akcigit, Harun Alp, Nicholas Bloom, and William R. Kerr

Abstract—We build a model of firm-level innovation, productivity growth, and reallocation featuring endogenous entry and exit. A new and central economic force is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using U.S. Census microdata on firm-level output, R&D, and patenting. The model provides a good fit to the dynamics of firm entry and exit, output, and R&D. Taxing the continued operation of incumbents can lead to sizable gains (of the order of 1.4% improvement in welfare) by encouraging exit of less productive firms and freeing up skilled labor to be used for R&D by high-type incumbents. Subsidies to the R&D of incumbents do not achieve this objective because they encourage the survival and expansion of low-type firms.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=44490

Does Financial Misconduct Affect the Future Compensation of Alumni Managers?

By: Groysberg, Boris, Eric Lin, and George Serafeim

Abstract—We explore how an organization’s financial misconduct may affect pay for former employees not implicated in wrongdoing. Drawing on stigma theory we hypothesize that although such alumni did not participate in the financial misconduct, and they had left the organization years before the misconduct, they experience a compensation penalty. Our results support this prediction. The stigma effect increases in relation to the job function proximity to the misconduct, recency of the misconduct, and an employee’s seniority. Collectively, our results suggest that the stigma of financial misconduct could reach alumni employees and need not be confined to executives and directors that oversaw the organization during the misconduct.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53547

Abstract— I analyze project continuation decisions where firms may resolve uncertainty through news about competitors' failures as well as through their own results. I examine the trade-offs and interactions between product-market competition and technological learning from parallel R&D projects in the setting of drug development. Leveraging the biopharmaceutical industry's unique characteristics to overcome barriers to measuring the project-level response to competitor news, I employ a difference-in-differences strategy to evaluate how competitor exit news alters a firm's own project discontinuation decisions. The findings reveal that technological learning dominates competition effects. Firms are most sensitive to competitor failure news coming from within the same market and technology area—more than doubling their propensity to terminate projects in the wake of this type of information. I also find evidence that firms overreact to failure news from closely related competitor projects. Finally, I investigate project- and firm-level characteristics that drive persistent differences in decision-making performance.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53563

Abstract—Patents and citations are powerful tools for understanding innovative activity inside the firm and are increasingly used in corporate finance research. But due to the complexities of patent data collection and the changing spatial and industry composition of innovative firms, biases may be introduced. We highlight several patent-level biases induced by truncation of reported patent awards and citations, affecting estimates of time trends and patterns across technology classes and regions. We then introduce measures of patent and citation biases. When aggregated at the firm level, these survive popular methods of adjustment and are correlated with firm-level characteristics. We show that these issues can lead to problematic—and ex ante predictable—inferences, using several examples from prominent streams of finance literature that use patent data. We suggest a number of concrete steps that researchers can employ to avoid biased inferences.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53554

  • Harvard Business School Case 717-056

The U.S. Shale Revolution: Global Rebalancing?

The American shale revolution has upended oil and gas markets for nearly a decade. Prices have risen then plunged, production has surged and then waned, LNG has boomed, and technology and productivity have improved. The U.S. energy policy, under the Obama administration, authorized a handful of gas exporters, despite pressure from domestic chemical and utility interests, and approved oil exports for the first time in 40 years. Environmental issues and questions remain unresolved. No one knows for certain what America’s energy trajectory will look like in the next decade.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/717056-PDF-ENG

This case explores the introduction of fleet management in the construction industry by the premium power tools manufacturer Hilti in 2000. Following its customers’ needs, Hilti moved from selling power tools to leasing them as a service. The introduction of the new business model contributed significantly to the success of Hilti, since it sustainably differentiated the company from its competitors. For instance, the adoption of fleet management resulted in customer loyalty levels five times higher than under the dominant business model Hilti had formerly employed and over-proportioned profit contribution at Hilti. Hilti’s chief technology officer described the importance of the innovation as follows: “Hilti developed many very innovative and successful products over the years, but they paled in comparison with the fleet management business model, which was the most important innovation in Hilti’s history.” All told, Hilti, which had about 22,000 employees and made about 4.5 billion Swiss Francs (or $4.589 billion USD) in sales in 2015, managed 1.5 million tools under fleet management contracts in 40 countries, resulting in a contract value of more than 1.2 billion Swiss Francs (approximately $1.4 billion USD). The (A) case describes the strategic decision-making process regarding the introduction of fleet management in its early planning stages.

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https://cb.hbsp.harvard.edu/cbmp/product/717427-PDF-ENG

The (B) case tackles the implementation and scaling process of fleet management over the years. Finally, the case explores current challenges facing the BMI.

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https://cb.hbsp.harvard.edu/cbmp/product/717465-PDF-ENG

  • Harvard Business School Case 414-046

Chobani: Growing a Live and Active Culture (Abridged)

Hamdi Ulukaya, CEO of the Greek yogurt company Chobani, Inc., was reflecting on what explained his young company's meteoric rise. The company held over half of the U.S. Greek yogurt market and nearly 20% of the total yogurt market. The company's innovative approach to product design, sales, marketing, and communication had made its yogurt a hit with consumers, and its entrepreneurial and innovative culture made it popular with its employees. But by 2012, major food companies, such as General Mills and Groupe Danone, were beginning to aggressively promote their Greek yogurt. In addition, Chobani was rolling out innovative new products and had to determine how to enter new markets. At the same time, Ulukaya was also focused on preserving the company's unique culture and approach to work as it grew.

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https://cb.hbsp.harvard.edu/cbmp/product/414046-PDF-ENG

  • Harvard Business School Case 517-073

BASF: Co-Creating Innovation (A)

In 2016, BASF's chief executive officer and chief technology officer reflected on the co-creation innovation program started almost 18 months ago as part of BASF's 150th anniversary celebration. Five hundred project ideas had been created, of which 100 had already moved to the company's conventional R&D funnel. Thirty-four had been short-listed for further consideration. At least 10, if not more of these projects, would receive "landmark" funding running at an average of 1 million Euro each. Beyond selecting the right projects, how could the CEO and CTO ensure that a complex organization such as BASF would encourage such fresh ideas to be developed and nurtured in the future? Was this experiment something that BASF should do again in the future?

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https://cb.hbsp.harvard.edu/cbmp/product/517073-PDF-ENG

  • Harvard Business School Case 517-074

BASF: Co-Creating Innovation (B)

Supplements the (A) case.

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https://cb.hbsp.harvard.edu/cbmp/product/517074-PDF-ENG

  • Harvard Business School Case 117-062

Organizing for Performance: Four Vignettes

This case provides four examples of organizations with very different business strategies: Walmart, Starbucks, Harvard Business School, and Google. To support their varying strategies, each of these organizations requires a specific configuration to provide the most value to their primary customer. Configurations examined include the Low Price, Local Value Creation, Global Standard of Excellence, Dedicated Service Relationship and the Expert Knowledge designs. Students are asked to analyze the configurations used in each of these examples and then to apply the analyses to a company with which they are familiar.

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https://cb.hbsp.harvard.edu/cbmp/product/117062-PDF-ENG

  • Harvard Business School Case 818-005

Public Entrepreneurs? Picking a Path

Direct entry into government remained an uncommon post-HBS path, with only 1%–2% of recent classes going directly into the public sector. But, for public-minded MBAs, government wasn’t the sole province for public problem-solving. MBAs could join or launch companies that sell to government (or directly to citizens), lead venture funds, operate as ecosystem partners, and more. What felt like a new array of opportunities, though, raised a host of additional questions: What does a career path for a public entrepreneur actually look like? In which sector (private vs. public) should I start? Should I run for elective office? What does that imply for how I pursue my career? And often, and perhaps especially, what do I need in order to be able to move back and forth between sectors? In the spring of 2017, four students in the MBA class felt incredibly fortunate. After two years of business school, strong opportunities awaited each of them. None was wanting for work. However, they still had to decide which posts to take at the moment, if any at all.

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  • Harvard Business School Case 818-006

Public Entrepreneurship

This course is rooted in the belief that there is a large opportunity for creating value and solving large public problems if there are more inventors and builders inside government and more inventors and builders outside government, building for it. The course was created to advance that opportunity. It is designed for students who anticipate founding or joining private startup companies that sell to (or around) government to solve public problems; for students who plan to be extreme innovators inside government; and for students who may lead in different parts of the connected ecosystem, as investors, advisors, etc.

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  • Harvard Business School Case 818-015

Lovepop

As they prepare to graduate from Harvard Business School, the co-founders of greeting card company startup Lovepop need capital to cover the company’s operating costs and must choose between two seed financing offers. One offer is from an angel group and the other from a startup accelerator. Having bootstrapped the company’s operations since its founding a year and a half earlier, the founders must weigh the differences in valuation and pros and cons of the accelerator program to determine which option is appropriate for Lovepop at this stage. In addition to addressing the challenges of early stage fundraising, the case details the terms, offerings, and operations of startup accelerators.

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https://cb.hbsp.harvard.edu/cbmp/product/818015-PDF-ENG