First Look

Abstract—We examine the optimal weighting of four tilts in U.S. equity markets from 1968 through 2014. We define a “tilt” as a characteristic-based portfolio strategy that requires relatively low annual turnover. This is a continuum, with small size (a very persistent characteristic) at one end of the spectrum and high frequency reversal at the other. Unlike low-turnover tilts, a full history of transaction costs is essential for determining the expected return of, and hence the optimal allocation to, less persistent, more turnover-intensive characteristics. The mean-variance optimal tilts toward value, size, and profitability are roughly equal to each other and equal to the optimal low-beta tilt. Notably, the low-beta tilt is not subsumed by the other three.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53024

Abstract—Objective: To define, measure, and characterize key competencies of managing labor and delivery units in the United States and assess the associations between unit management and maternal outcomes. Methods: We developed and administered a management measurement instrument using structured telephone interviews with both the primary nurse and physician managers at 53 diverse hospitals across the United States. A trained interviewer scored the managers' interview responses based on management practices that ranged from most reactive (lowest scores) to most proactive (highest scores). We established instrument validity by conducting site visits among a subsample of 11 hospitals and established reliability using interrater comparison. Using a factor analysis, we identified three themes of management competencies: management of unit culture, patient flow, and nursing. We constructed patient-level regressions to assess the independent association between these management themes and maternal outcomes. Results: Proactive management of unit culture and nursing was associated with a significantly higher risk of primary cesarean delivery in low-risk patients (relative risk [RR] 1.30, 95% CI 1.02–1.66 and RR 1.47, 95% CI 1.13–1.92, respectively). Proactive management of unit culture was also associated with a significantly higher risk of prolonged length of stay (RR 4.13, 95% CI 1.98–8.64), postpartum hemorrhage (RR 2.57, 95% CI 1.58–4.18), and blood transfusion (RR 1.87, 95% CI 1.12–3.13). Proactive management of patient flow and nursing was associated with a significantly lower risk of prolonged length of stay (RR 0.23, 95% CI 0.12–0.46 and RR 0.27, 95% CI 0.11–0.62, respectively). Conclusion: Labor and delivery unit management varies dramatically across and within hospitals in the United States. Some proactive management practices may be associated with increased risk of primary cesarean delivery and maternal morbidity. Other proactive management practices may be associated with decreased risk of prolonged length of stay, indicating a potential opportunity to safely improve labor and delivery unit efficiency.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52998

Abstract—Around the world, increases in wealth have produced an unintended consequence: a rising sense of time scarcity. We provide evidence that using money to buy time can provide a buffer against this time famine, thereby promoting happiness. Using large, diverse samples from the United States, Canada, Denmark, and the Netherlands (n = 6,271), we show that individuals who spend money on time-saving services report greater life satisfaction. A field experiment provides causal evidence that working adults report greater happiness after spending money on a time-saving purchase than on a material purchase. Together, these results suggest that using money to buy time can protect people from the detrimental effects of time pressure on life satisfaction.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52953

Abstract—We study how a stock index can affect corporate behavior by serving as a source of prestige. After decades of low corporate profitability in Japan, the JPX-Nikkei400 index was introduced in 2014. The index selected 400 large and liquid firms deemed to be best performing in terms of annual profitability; membership was considered highly prestigious. We document that index-inclusion incentives led firms to increase return on equity (ROE) proportionally by 35% on average through higher margins, efficiency, or shareholder payouts, depending on where firms had “slack,” but not through changing investments or accruals. These incentives are driven by the prestige associated with the index rather than capital market benefits. Back-of-envelope estimates suggest that the index accounted for 23% of the average increase in aggregate annual earnings over our sample period and a 3% increase in aggregate market capitalization. These findings highlight a novel mechanism through which long-standing corporate behaviors can be transformed.

Abstract—Many markets, including the markets for IPOs and debt issuances, are syndicated, in that a bidder who wins a contract will often invite competitors to join a syndicate that will fulfill the contract. We model syndicated markets as a repeated extensive form game and show that standard intuitions from industrial organization can be reversed: Collusion may become easier as market concentration falls, and market entry may in fact facilitate collusion. In particular, price collusion can be sustained by a strategy in which firms refuse to join the syndicate of any firm that deviates from the collusive price, thereby raising total production costs. Our results can thus rationalize the apparently contradictory empirical facts that the market for IPO underwriting exhibits seemingly collusive pricing despite its low level of market concentration.

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After a remarkable success in Japan, the producer of the Japanese female singing group AKB48 evaluates market opportunities overseas for his artistic creation. This case introduces the business model behind the AKB48 concept and allows students to identify what geographic market—China, Indonesia, Taiwan, the Philippines, Thailand, or South Korea—is more suitable for AKB48’s first move overseas. During the discussion, students also identify the geographic limits of a product and what changes, if any, should be made to adapt to a chosen market. Given high levels of piracy in the music industry, students are not only able to explore the value creation aspects of AKB48, but also the value-capture features of its business model.

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Supplements the (A) case.

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The Indian Space Research Organization (ISRO) achieved global acclaim by launching successful missions to the moon and Mars at a fraction of the cost of prior Western missions. It is now faced with an important strategic dilemma—whether to continue exploring deep space in collaboration with NASA and other leading agencies, whether to leverage its infrastructure for societal uses, or whether to exploit a commercial opportunity related to launching small, handheld cubesats. The case explores the basis for ISRO’s cost advantage vis-à-vis western entities, as well as its resource constraints and human capital considerations as it makes this important strategic choice for the future.

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Luminopia—a start-up founded in January 2016 by three Harvard College freshmen—uses virtual reality technology to treat amblyopia (more commonly called “lazy eye”), the single biggest cause of visual disorders among children. By February 2017, the three founders had raised $950,000 in angel funding and developed a prototype of their virtual reality product, which was in use in clinical trials at Boston Children’s Hospital. As the founders prepare to bring their new medical device to market, they struggle with two key decisions: Should Luminopia create its own salesforce to sell its product or should it outsource? And how should the company price its device to maximize returns yet remain attractive to doctors, insurance providers, and individual patients?

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Pedro de Camargo Neto, Brazil's secretary of trade and production for the Ministry of Agriculture, has won a WTO sugar decision for Brazil against the EU sugar policies. This case analyzes what this decision will mean to world food policies, especially those of the EU and the United States. The ruling strengthens the WTO as a decision maker with respect to fair trade policy. The issue revolves around what actions the various private and public decision makers will now take to make this ruling work while not placing too big a burden on any one segment of the economy.

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Forward-thinking established companies utilize new routes for external innovation with start-ups and crowds. The reading reviews strategic partnerships, strategic investments, strategic acquisitions, and crowd-based collaborations. Case examples include Google, SK Telecom, DaVita, UPS, and GSK. This note can be paired with Core Curriculum Reading: Leading Breakthrough Innovation in Established Companies (#5272).

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Over the course of a tumultuous weekend in April 2010, André Wyss was put in charge of Novartis Pharmaceuticals Corporation (NPC), the U.S. sales and marketing subsidiary of Novartis Pharma AG. He was brought in at a critical point in the organization's evolution with a mandate to grow the specialty medications business; however, the skills and capabilities needed to market and sell specialty medications were considerably different than those required for marketing and selling primary care medications, which NPC had been quite successful doing. In 2011, the five-year revenue projections were revised significantly downward, and Wyss needed to cut costs while also building the organization's capabilities quickly in early 2012.

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This (B) case describes the actions André Wyss, president of Novartis Pharmaceuticals Corporation, took in early 2012 to transform the company's General Medicines group and build its specialty medications, marketing the selling capabilities in the face of falling revenues and an imminent workforce reduction. Rather than downsize the organization quickly to save costs, Wyss and his team took a different approach. They told the organization's employees that there would be a significant workforce reduction but it would not occur for several months. In the meantime, Wyss asked the employees to help build the new capabilities and put processes in place to support the move into specialty medications. It was a bold decision and defied convention.

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No abstract available.

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No abstract available.

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In 2017, executives at OpenNotes, a national movement to improve the relationship between doctors and patients by sharing doctors’ visit notes about patients with patients, were considering options in efforts to achieve scale. The movement hoped to reach 50 million patients by 2020. One opportunity was building an OpenNotes app for smartphones, in which patients could access their visit notes on their phones through an app compatible with Apple CareKit. But OpenNotes had other options, including partnerships with consumer groups and insurers. In addition, they would always have a role in encouraging doctors and institutions to share notes more readily. What was the best way to scale OpenNotes? Was it the app route or some other way to pursue the group’s ambitions?

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Kaiser Permanente (KP) is the largest managed care organization in the United States with over 10 million members. KP evolved from a prepayment or capitation model that focuses the organization around the efficiency of care and the health of the population it serves. This financial model is in stark contrast to the fee-for-service payment model for other health care organizations. Given the epidemic of obesity in the U.S., KP is facing an enormous potential liability from future costs of obesity and diabetes. Given low turnover in health plan membership, how should they respond to this crisis? How should they invest in the health of their covered population, their employees, and the communities they serve? The case details the origins and development of KP.

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Di-Ann Eisnor, director of growth at Waze, founded the company’s Connected Citizens Program (CCP), a data-sharing partnership that provided officials with traffic incident and congestion data. Since 2015, her program had enabled officials in Kentucky and elsewhere to share more reliable traffic information more quickly with drivers. Now, the program that Eisnor and CCP’s three-person team had built was short the analytical tools Kentucky officials felt they needed to prepare for the Kentucky Derby, their biggest event of the year. What would she do about that? Eisnor had a challenge on her hands in Kentucky. And also in Jakarta. And Los Angeles. From its launch in October 2014 through spring 2016, one-on-one contact by her small CCP team had spurred growth from 10 to more than 50 partners. Eisnor and Paige Fitzgerald, CCP’s Program Manager, earned kudos from their Waze colleagues and caught the attention of Waze’s now-parent company, Google. But the successes came with high expectations, too. Waze was intensely focused on user growth, and Google’s culture was to build things and then build those things “10x” bigger. How would Eisnor’s team take a free program supported by three people to 500 partners or more?

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By August 2015, two-year-old mobile imaging software startup Lightricks had developed and released two best-selling paid mobile apps, grown to a team of 30, earned a revenue run rate of nearly $10 million, and achieved modest profitability. The bootstrapped company had explored raising funds, met with venture capital firms, and was presented with a term sheet. The cofounders believed the financing would allow them to scale up quicker, but they also worried about losing control of their company.

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Headquartered in Hangzhou (China), Ant Financial has grown into a fintech “Unicorn.” The fintech empire that the company established spanned verticals such as mobile and online payment (Alipay), money market fund (Yu’e Bao), wealth management (Ant Fortune), digital-only banking (MYbank), credit scoring (Zhima Credit), and consumer credit portal (Ant Credit Pay) among others. After another sales record during the 2016 11.11 Global Shopping Festival along with Alibaba, Long Chen, chief strategy officer of Ant Financial, was contemplating the various opportunities and challenges associated with the firm’s international expansion, inclusive finance in rural regions, and regulatory uncertainties.

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