First Look

September 12, 2017

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

The need to consider self-managing organizations

Organizations that eschew hierarchical management are becoming more and more mainstream, necessitating a new stream of scholarly study, argue Michael Y. Lee and Amy C. Edmondson. In a forthcoming Research in Organizational Behavior article, they look at the existing literature on three categories of research: post-bureaucratic organizations, humanistic management, and organizational democracy. Self-Managing Organizations: Exploring the Limits of Less Hierarchical Organizing.

The downside of positive information

Why does telling decision-makers about the benefits of any given action—say, a charitable donation—often fail to encourage that action? In a new working paper, Christine Exley and Judd B. Kessler propose that such information also inadvertantly highlights the limitations of the action "and thus prevent[s] the action from being deemed good enough." The Better is the Enemy of the Good.

The case of Signet Jewelers

A new case study visits Signet Jewelers, the world's largest diamond retailer, at a time when renowned short seller Marc Cohodes has identified weaknesses in the company's business strategy. “He believes that the company accounts for its receivables portfolio using recency accounting to hide the problem," write authors Gerardo Pérez Cavazos, Suraj Srinivasan, and Monica Baraldi. "The case presents Cohodes' thesis, the response by Signet's management team, as well as the reactions by sell-side analysts." Signet Jewelers: All That Glitters...

Other new publications from Harvard Business School faculty are listed below.

— Carmen Nobel
 
  • September–October 2017
  • Harvard Business Review

GE's Global Growth Experiment: The Company Pushed Cross-Business Collaboration

By: Gulati, Ranjay

Abstract—Like many other companies, GE under Immelt had to figure out how to balance serving local needs with the economies of worldwide scale. Harvard Business School’s Ranjay Gulati looks at how it tackled the challenge. He identifies several important takeaways for other multinationals: Give the local organizations clout, embrace creative abrasion, build strong functions, and eliminate strategic blind spots.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53200

  • September–October 2017
  • Harvard Business Review

Managing Our Hub Economy: Strategy, Ethics, and Network Competition in the Age of Digital Superpowers

By: Iansiti, Marco, and Karim R. Lakhani

Abstract—A small number of digital superpowers—Alibaba, Amazon, Microsoft, and others—have become “hub firms” because they control access to billions of mobile customers coveted by all kinds of product and service providers. These hubs drive increasing returns to scale and claim a disproportionate share of the value being created in the global economy. The authors argue that the hub economy will continue to spread across more industries, concentrating more power in the hands of a few. As an example, they take an in-depth look at the auto industry and how Apple and Alphabet/Google are poised to become the main beneficiaries as cars turn into digitally connected spaces for work, entertainment, and shopping. As hubs proliferate and expand their reach, the danger is that they will exacerbate economic inequality and threaten social stability. It is thus incumbent on all stakeholders—traditional companies, start-ups, institutions, and communities—to make certain changes in the ways they do business. Moreover, hub firms themselves must do a better job leading responsibly for the good of all, not just creating and capturing value but doing more to sustain other players in the ecosystem.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53202

  • August 2, 2017
  • Harvard Business Review

The Real Reason Uber Is Giving Up in China

By: Kirby, William C.

Abstract—The article examines the role of the Chinese government in transport firm Uber's decision to sell its China operation to a rival Chinese ride-sharing company.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53182

  • September–October 2017
  • Harvard Business Review

The Surprising Power of Online Experiments: Getting the Most Out of A/B and Other Controlled Tests

By: Kohavi, Ron, and Stefan H. Thomke

Abstract—In the fast-moving digital world, even experts have a hard time assessing new ideas. Case in point: At Bing, a small headline change an employee proposed was deemed a low priority and shelved for months until one engineer decided to do a quick online controlled experiment—an A/B test—to try it out. The test showed that the change increased revenue by an astonishing 12%. It ended up being the best revenue-generating idea Bing ever had, worth $100 million. That experience illustrates why it’s critical to adopt an “experiment with everything” approach, say Kohavi, the head of the Analysis & Experimentation team at Microsoft, and Thomke, an HBS professor. In this article they describe how to properly design and execute A/B and other controlled tests, ensure their integrity, interpret results, and avoid pitfalls. They argue that if a company sets up the right infrastructure and software, it will be able to evaluate ideas not only for improving websites but also for new business models, products, strategies, and marketing campaigns—all relatively inexpensively. This will help it find the right path forward, especially when answers aren’t obvious or people have conflicting opinions.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53201

  • forthcoming
  • Research in Organizational Behavior

Self-Managing Organizations: Exploring the Limits of Less Hierarchical Organizing

By: Lee, Michael Y., and Amy C. Edmondson

Abstract—Fascination with organizations that eschew the conventional managerial hierarchy and instead radically decentralize authority has been longstanding, albeit at the margins of scholarly and practitioner attention. Recently, however, organizational experiments in radical decentralization have gained mainstream consideration, giving rise to a need for new theory and new research. This paper reviews the literature on less hierarchical organizing and identifies three categories of research: post-bureaucratic organizations, humanistic management, and organizational democracy. Despite this extensive prior work, scholarly understanding of radical decentralization remains limited. Using the term self-managing organizations to capture efforts that radically decentralize authority in a formal and systematic way throughout the organization, we set forth a research agenda to better understand less-hierarchical organizing at its limits.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53193

  • September–October 2017
  • Harvard Business Review

Why Do We Undervalue Competent Management? Neither Great Leadership Nor Brilliant Strategy Matters Without Operational Excellence

By: Sadun, Raffaella, Nicholas Bloom, and John Van Reenen

Abstract—A recurring message in business education is that you can’t compete on the basis of management processes because they’re easily copied. Operational effectiveness is table stakes in the competitive universe, it is often assumed, and thus cannot serve as a sustainable source of competitive advantage. But data from a decade-long research project involving 12,000 firms challenges that thinking. The study examined how well companies performed 18 core management practices. It found vast differences in how they execute basic tasks like setting targets, running operations, and grooming talent, and that those differences matter: Firms with strong managerial processes do significantly better on high-level metrics such as profitability, growth, and productivity. What’s more, the differences in process quality persist over time, suggesting that competent management is not easy to imitate. In this article the authors review the findings of the research and explore what prevents executives from investing in management capabilities, arguing that such investments are a powerful way to become more competitive.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53203

Debt Redemption and Reserve Accumulation

By: Alfaro, Laura, and Fabio Kanczuk

Abstract—In the past decade, foreign participation in local-currency bond markets in emerging countries increased dramatically. We revisit sovereign debt sustainability under the assumptions that countries can accumulate reserves and borrow internationally using their own currency. As opposed to traditional sovereign-debt models, asset-valuation effects occasioned by currency fluctuations act to absorb global shocks and render consumption smoother. Countries do not accumulate reserves to be depleted in “bad” times. Instead, issuing domestic debt while accumulating reserves acts as a hedge against external shocks. A quantitative exercise of the Brazilian economy suggests this strategy to be effective for smoothing consumption and reducing the occurrence of default.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=44340

The Better Is the Enemy of the Good

By: Exley, Christine L., and Judd B. Kessler

Abstract—In standard economic theory, information helps agents optimize. But providing agents with information about the benefits of an action often fails to encourage that action. This paper proposes a far-reaching behavioral explanation: information may make salient that the benefits of taking an action could be improved and agents may see the potential for improvement as a reason to avoid the action. In an experiment, making more salient how a donation could be improved significantly decreases giving. Self-serving motives dramatically magnify the effect, suggesting why information may be particularly ineffective at encouraging privately costly actions with social or future benefits.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53178

Abstract—Clusters are defined as geographically concentrated agglomerations of specialized firms in a particular domain. The cluster concept in its broader meaning of industrial agglomeration has been the focus of longstanding debates in the social sciences. This working paper traces the evolution of the literature on industrial concentration, reviewing the major contributions and puzzles at the core of cluster theory with a specific focus on clustering in developing economies. Traditionally, studies on clusters have overemphasized the dynamics arising in specific cluster locations as opposed to the impact of external factors. Indeed, researchers have explained clusters as self-contained entities and reduced their success to local exceptionality. In contrast, emerging literature has shown that clusters are integrated in broader structures beyond their location and are rather building blocks of today’s global economy. The working paper goes on to present two historical cases from the global south to explain how clusters work as major tools for international business. Particularly in the developing world, multinationals have used clusters as platforms for channeling foreign investment, knowledge, and imported inputs. The study concludes by stressing the importance of using historical evidence and data to look at clusters as agglomerations of actors and companies operating not just at the local level but across broader global networks. In doing so the historical perspective provides explanations lacking in the existing cluster scholarship to understand clusters as organizational structures underpinning the process of globalization.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53184

  • Harvard Business School Case 517-083

CJ E&M: KCON Goes Global

In January of 2017, CJ Entertainment & Media (E&M) proudly announced that it will be holding its first ever KCON in Mexico City just two months later. CJ Group Chairman Jay Lee and Vice Chairwoman Miky Lee are pleased at the progress that KCON, a Korean-oriented music and cultural convention, has made since its debut in Los Angeles (LA) in 2012. In the years since 2012, the event has been held every year in LA and has recently also taken place in New York, Tokyo, Paris, and Abu Dhabi, with varying levels of financial success. In addition to growing in number, KCON has grown in size. By 2016, KCON LA had become a three-day, two-concert affair, that attracted 70,000 attendees with a wide range of experiences for fans to enjoy, including Korean foods, dance classes, beauty products, and eSports offerings. Chairman Lee and VC Lee believe that KCON is a good vehicle for accelerating the Hallyu wave of Korean culture that was still sweeping the globe and riding this wave in promoting CJ Group offerings. Indeed, the Group’s food brand Bibigo, which ran nine restaurants in the LA area and sold frozen dumplings and other Korean foods in Costco across the U.S., and KCON.tv, a digital media channel, were experiencing commercial success in the U.S. market. But at the same time, there was some uncertainty about the best way to ensure continued growth of the KCON concept. Should they expand the current KCONs to include more days, shows, and events; launch KCONs in new geographies such as Southeast Asia or Australia; or some combination of these growth strategies? How concerned should they be with KCON’s uneven financial performance and difficulty in generating sponsorship revenue? KCON LA and KCON Tokyo have made a profit for multiple years in a row, and KCON NY was in the black for the first time in 2016, but other KCONs lost money. What can they do to further grow the Bibigo brand in the U.S.? At a more fundamental level, could CJ E&M continue to bank on the popularity of k-pop and k-dramas to drive broader interest in Korean culture?

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/517083-PDF-ENG

  • Harvard Business School Case 117-038

Signet Jewelers: All That Glitters...

Marc Cohodes, a renowned short seller, has identified weaknesses in Signet's business strategy, which he argues is heavily reliant on providing loans to customers with subprime credit scores. He believes that the company accounts for its receivables portfolio using recency accounting to hide the problem. The case presents Cohodes' thesis, the response by Signet's management team, as well as the reactions by sell-side analysts.

Purchase this case:
https://cb.hbsp.harvard.edu/cbmp/product/117038-PDF-ENG