First Look

December 18, 2012

The Ikea Effect

There's a nice sense of accomplishment that comes with creating something from scratch, whether it's a batch of brownies or a bookshelf. It feels so good, in fact, that customers are often willing to pay more for build-it-yourself products than for identical products assembled by others. Experimental researchers Dan Mochon, Michael I. Norton, and Dan Ariely uncover the reasons behind this tendency in their article "Bolstering and Restoring Feelings of Competence via the IKEA Effect," published in the International Journal of Research in Marketing.

Hospital Traffic Jams

A new working paper explores how inventory bottlenecks affect productivity, focusing on data from 250 hospitals--in which the "inventory" comprises patients in their inpatient units. Frustratingly, the researchers find that the more patients are waiting to be admitted to a hospital, the longer it will take for existing patients to be discharged. "Controlling for a patient's condition, we find that inpatient congestion is associated with an increase in the average [length of stay] by up to 22.8% compared to when inpatient congestion is low," write authors Jillian Berry Jaeker and Anita L. Tucker. Read "Hurry Up and Wait: Differential Impacts of Congestion, Bottleneck Pressure, and Predictability on Patient Length of Stay."

The Government's Role In Vc

Battery-maker A123 Systems declared bankruptcy in October, three years after receiving $249 million in stimulus funding from the Federal government, fueling a debate about the government's role in promoting entrepreneurship. While the players change from year to year, the debate dates back to the Great Depression, according to Josh Lerner and Tom Nichols. They discuss the ongoing issue in a new background note, "The Role of Government in the Early Development of American Venture Capitalism."
— Carmen Nobel


Harder Than I Thought: Adventures of a Twenty-First Century Leader


Being a great leader today is much harder than you think-meet Jim Barton. He's a newly minted CEO, rising leader of a firm in transition, and manager of massive complexity-thanks to our incredibly networked and increasingly unpredictable world of business. What if you were in his shoes? If you're a top executive today, you probably are. Harder Than I Thought is a fictional narrative that puts the increasingly complex job of Chief Executive in a very real context. It serves as a practical guide by allowing you to walk alongside Jim as he takes on his new role and all its attendant challenges. Jim's story-developed in collaboration with seasoned, real-life CEOs-includes crucial lessons for anyone hoping to master the new-world skills required of successful business leaders today. As the narrative unfolds, Jim grapples with an array of business crises, some he inherited and some of his own making. As events push this new leader to the edge of his abilities, he seeks counsel from a panel of advisers-resulting in a wealth of teaching moments bound to keep you captivated. Experts agree that many twentieth-century leadership practices won't work in the turbulent twenty-first century. This engaging book gives you the insights you'll need to navigate in a fast-changing business landscape.


Breaking Them In or Revealing Their Best? Reframing Socialization Around Newcomer Self-expression


Socialization theory has focused on enculturating new employees such that they develop pride in their new organization and internalize its values. Drawing on authenticity research, we propose that the initial stage of socialization leads to more effective employment relationships when it instead primarily encourages newcomers to express their personal identities. In a field experiment carried out in a large business process outsourcing company, we found that initial socialization focused on personal identity (emphasizing newcomers' authentic best selves) led to greater customer satisfaction and employee retention after six months as compared to (a) socialization that focused on organizational identity (emphasizing the pride to be gained from organizational affiliation) and (b) the organization's traditional approach, which focused primarily on skills training. To confirm causation and explore the mechanisms underlying the effects, we replicated the results in a laboratory experiment. We found that individuals working temporarily as part of a research team were more engaged and satisfied with their work, performed their tasks more effectively, and were more likely to return to work when initial socialization focused on personal identity as compared to a focus on organizational identity or a control condition. In addition, authentic self-expression mediated these relationships. We call for a new direction in socialization theory that examines how both organizations and employees benefit by emphasizing newcomers' authentic best selves.


First-Party Content and Coordination in Two-Sided Markets


The strategic use of first-party content by two-sided platforms is driven by two key factors: the nature of buyer and seller expectations (favorable versus unfavorable) and the nature of the relationship between first-party content and third-party content (complements or substitutes). Platforms facing unfavorable expectations face an additional constraint: their prices and first-party content investment need to be such that low (zero) participation equilibria are eliminated. This additional constraint typically leads them to invest more (less) in first-party content relative to platforms facing favorable expectations when first- and third-party content are substitute (complements). These results hold with both simultaneous and sequential entry of the two sides. With two competing platforms-incumbent facing favorable expectations and entrant facing unfavorable expectations-and multi-homing on one side of the market, the incumbent always invests (weakly) more in first-party content relative to the case in which it is a monopolist.

Bolstering and Restoring Feelings of Competence via the IKEA Effect


We examine the underlying process behind the IKEA effect, which is defined as consumers' willingness to pay more for self-created products than for identical products made by others, and explore the factors that influence both consumers' willingness to engage in self-creation and the utility that they derive from such activities. We propose that creating products fulfills consumers' psychological need to signal competence to themselves and to others, and that feelings of competence associated with self-created products lead to their increased valuation. We demonstrate that the feelings of competence that arise from assembling products mediate their increased value (Experiment 1), that affirming consumers' sense of self decreases the value they derive from their creations (Experiment 2), and that threatening consumers' sense of self increases their propensity to make things themselves (Experiments 3A and 3B).

Paper: norton ariely 2012.pdf

Measuring Teamwork in Health Care Settings: A Review of Survey Instruments


Background: Teamwork in health care settings is widely recognized as an important factor in providing high quality patient care. However, the behaviors that comprise effective teamwork, the organizational factors that support teamwork, and the relationship between teamwork and patient outcomes remain empirical questions in need of rigorous study. Objective: To identify and review survey instruments used to assess dimensions of teamwork, so as to facilitate high quality research on this topic. Research design: We conducted a systematic review of articles published before September 2012 to identify survey instruments used to measure teamwork and to assess their conceptual content, psychometric validity, and relationships to outcomes of interest. We searched the ISI Web of Knowledge database and identified relevant articles using the search terms team, teamwork, or collaboration in combination with survey, scale, measure, or questionnaire. Results: We found 39 surveys that measured teamwork. Surveys assessed different dimensions of teamwork. The most commonly assessed dimensions were communication, coordination, and respect. Of the 39 surveys, 10 met all of the criteria for psychometric validity, and 14 showed significant relationships to non-self-report outcomes. Conclusions: Evidence of psychometric validity is lacking for many teamwork survey instruments. However, several psychometrically valid instruments are available. Researchers aiming to advance research on teamwork in health care should consider using or adapting one of these instruments before creating a new one. Because instruments vary considerably in the behavioral processes and emergent states of teamwork that they capture, researchers must carefully evaluate the conceptual consistency between instrument, research question, and context.



Working Papers

Growth through Heterogeneous Innovations


We study how exploration versus exploitation innovations impact economic growth through a tractable endogenous growth framework that contains multiple innovation sizes, multi-product firms, and entry/exit. Firms invest in exploration R&D to acquire new product lines and exploitation R&D to improve their existing product lines. We model and show empirically that exploration R&D does not scale as strongly with firm size as exploitation R&D. The resulting framework conforms to many regularities regarding innovation and growth differences across the firm size distribution. We also incorporate patent citations into our theoretical framework. The framework generates a simple test using patent citations that indicates that entrants and small firms have relatively higher growth spillover effects

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Hurry Up and Wait: Differential Impacts of Congestion, Bottleneck Pressure, and Predictability on Patient Length of Stay


High workload, from high inventory levels, impacts unit processing times, but prior operations management studies have found conflicting results regarding direction. Thus, it is difficult to predict inventory's effects on productivity a priori, inhibiting effective capacity management in high load systems. We categorize load into in-process inventory (congestion) and incoming inventory, decomposing the latter into its levels of bottleneck (BN) pressure and predictability, and quantify the magnitudes and directions of change on processing times. Using data from 283 hospitals, we find (1) high congestion increases a patient's hospital stay up to 28%, indicating inefficiencies from overloaded resources; (2) a patient stays up to 11.7% longer if there is a high load of incoming low BN pressure patients, consistent with the slowdown associated with "social loafing"; (3) a patient's stay is up to 10.2% shorter when there is a high incoming load of predictable patients, consistent with workload smoothing.

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The Novelty Paradox & Bias for Normal Science: Evidence from Randomized Medical Grant Proposal Evaluations


Central to any innovation process is the evaluation of proposed projects and allocation of resources. We investigate whether novel research projects, those deviating from existing research paradigms, are treated with a negative bias in expert evaluations. We analyze the results of a peer review process for medical research grant proposals at a leading medical research university, in which we recruited 142 expert university faculty members to evaluate 150 submissions, resulting in 2,130 randomly assigned proposal-evaluator pair observations. Our results confirm a systematic penalty for novel proposals; a standard deviation increase in novelty drops the expected rank of a proposal by 4.5 percentile points. This discounting is robust to various controls for unobserved proposal quality and alternative explanations. Additional tests suggest information effects rather than strategic effects account for the novelty penalty. Only a minority of the novelty penalty could be related to perceptions of lesser feasibility of novel proposals.

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IP Modularity: Profiting from Innovation by Aligning Product Architecture with Intellectual Property


In this paper we explain how firms seeking to take advantage of distributed innovation and outsourcing can bridge the tension between value creation and value capture by modifying the modular structure of their technical systems. Specifically, we introduce the concept of "IP modularity," a special form of modularity that seeks to protect and capture value from intellectual property (IP). We define what it means for a system to be "IP-modular," and illustrate the application of this concept in a number of practical situations. From the examples, we derive a comprehensive framework that can be used to design and evaluate value capture strategies for modular systems.

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Agglomerative Forces and Cluster Shapes


We model spatial clusters of similar firms. Our model highlights how agglomerative forces lead to localized, individual connections among firms, while interaction costs generate a defined distance over which attraction forces operate. Overlapping firm interactions yield agglomeration clusters that are much larger than the underlying agglomerative forces themselves. Empirically, we demonstrate that our model's assumptions are present in the structure of technology and labor flows within Silicon Valley and its surrounding areas. Our model further identifies how the lengths over which agglomerative forces operate influence the shapes and sizes of industrial clusters; we confirm these predictions using variations across patent technology clusters.

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An Outside-Inside Evolution in Gender and Professional Work


We study the process by which a professional service firm reshaped its activities and beliefs over nearly two decades as it adapted to shifts in the social discourse regarding gender and work. Analyzing archival data from the firm over eighteen years and representations of gender and work from the business press over the corresponding two decades, we find that the firm internalized the broader social discourse through iterated cycles of analysis and action, punctuated by evolving beliefs about gender and work. Outside experts and shifting social understandings played pivotal roles in changing beliefs and activities inside the firm. We conclude with an internalization model depicting organizational adaptation to evolving social institutions.

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Cases & Course Materials

Australia: Commodities and Competitiveness

Alfaro, Laura, Richard H.K. Vietor, Bill Russell, and Hilary White
Harvard Business School Case 713-015

For the past few decades, Australia has dealt with the benefits and costs of repeated mining booms-inflation, a housing bubble, a current account deficit, and growing dependence on China. Between 1996 and 2007, however, Australia had most of these issues under control and grew at impressive rates, becoming one of the richest of developed countries. Yet competitiveness in its non-mining sectors declined. Since the financial crisis, additional challenges associated with climate change, minerals taxes, migration, and an overvalued currency have complicated the issues facing Julia Gillard and her Labor Party, with a very thin majority.

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Automating the Paris Subway (A)

Anteby, Michel, Elena Corsi, and Emilie Billaud
Harvard Business School Case 413-061

In 2001, the head of the Paris Subway reflected on how to transform Line 1 into a driverless line without triggering a social conflict. After the shock of the 2000 Notre Dame de Lorette subway accident, in which a train derailed and caused 25 injuries in a Paris subway station, the state-owned Paris subway operator Régie Autonome des Transports Parisiens (RATP) decided to adopt new security measures and considered the opportunity to automate the oldest and the busiest line of the network. The head of the Paris Subway, Serge Lagrange, believed that automating Line 1 would improve security as well as performance. However, the automation would bring about the downsizing of 219 drivers' positions. Lagrange had to figure out how to get the RATP employees on board, particularly drivers and trade unions. How could he convince them of the necessity to automate Line 1? How could he prevent the potentially major social conflict that might result from downsizing the drivers' positions?

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Innovating into Active ETFs: Factor Funds Capital Management LLC

Froot, Kenneth A., Lauren Cohen, and Scott Waggoner
Harvard Business School Case 211-031

Kishore Karunakaran, president and COO of FFCM, faces a variety of challenges in launching an innovative investment management business in the rapidly evolving ETF space.

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Kyruus: Big Data's Search for the Killer App

Higgins, Robert F., Penrose O'Donnell, and Mehul Bhatt
Harvard Business School Case 813-060

Kyruus is used in a course at HBS on Entrepreneurship in Healthcare IT and Services (EHITS). It describes a young company that has built a very large database on physicians. The company has had some early successful pilots with prominent customers, but it is now faced with choices on which markets to pursue. These markets each offer opportunity, but the company must make some decisions. As is often the case in early stage companies, these choices will affect a number of things, including organizational needs and capital requirements.

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Microsoft Office 2007 (Abridged)

Iansiti, Marco, and Bianca Buccitelli
Harvard Business School Case 613-061

A discussion of the history and processes behind the development of Microsoft's Office 12 software.

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Marc Rich and Global Commodity Trading

Jones, Geoffrey, and Espen Storli
Harvard Business School Case 813-020

Examines the career of Marc Rich, the world's leading commodity trader before his criminal indictment in the United States in 1983. The case surveys the historical growth of commodity trading, especially in metals, from the late nineteenth century, and its evolving forms as governments intervened in markets after 1945. Rich joined Philipp Brothers, then the largest commodity trader, in 1954. He formed his own firm two decades later. He was instrumental in the creation of a spot market in petroleum and assumed a pivotal role in the industry during the 1970s by selling Iranian oil to Israel and South Africa. The case provides a means to explore the rationale and advantages of giant commodity traders, as well as enabling students to debate corporate use of tax havens.

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The Role of the Government in the Early Development of American Venture Capital

Lerner, Josh, and Tom Nicholas
Harvard Business School Note 813-096

Whether the government or markets, or a mixture of both, can provide efficient and effective incentives for encouraging entrepreneurial activity and new venture financing is an age old question. Public promotion efforts are controversial, and in most cases they tend to fail. In the United States, debate about the role of government in these areas can be traced back to at least the Great Depression and the period immediately after World War II when the issue became a particular concern. Policy makers considered that existing financial institutions could neither provide the necessary due diligence nor the pool of risk capital that was necessary to spur entrepreneurial ventures. Furthermore, there were calls for additional inducements in the form of tax-related incentives. The mechanisms that were used raise questions about benefits, costs, and unintended consequences. Can, and should, the government influence entrepreneurial activity and venture financing? What are the limits to government intervention?

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Cialis Lifecycle Management: Lilly's BPH Dilemma

Ofek, Elie, and Natalie Kindred
Harvard Business School Case 513-005

How should Eli Lilly further develop and market a new indication of its highly successful erectile-dysfunction (ED) drug, Cialis, without confusing Cialis's hard-won brand equity with physicians and patients? With the final stages of clinical trials for the new indication, benign prostatic hyperplasia (BPH), soon to be carried out, the team had to make a decision soon. On its face, the market opportunity for a BPH indication, and its synergies with an ED drug, seemed enormous: both ED and BPH were age-related conditions, and data showed that half of men with ED had BPH symptoms. Moreover, the BPH indication would be taken in the same frequency and dosing as the once-a-day version of Cialis. However, market research had revealed significant challenges in introducing the BPH indication under the Cialis name. For example, although ED and BPH often co-existed, men perceived them quite differently. Some physicians also reacted negatively to the BPH indication. Impending competition from low-price ED generics, given that Viagra would soon be going off patent, underscored the importance of the BPH opportunity.

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Can the Eurozone Survive?

Roscini, Dante, and Jonathan Schlefer
Harvard Business School Case 713-034

The sovereign debt crisis that took Greece by storm in 2010 began to spread to other European markets. Within a few months Ireland and Portugal had also lost access to the sovereign debt markets and had to rely on supranational loans for their financing. The risk of further contagion was clear and present. Political leaders continued to seek measures to stem the crisis and to avoid the larger economies of Spain and Italy becoming involved. The European financial system became strained. Banks were found to be undercapitalized and began to ration credit to the economy. The European Central Bank intervened to provide liquidity to the system in order to avoid a credit crunch. Could the eurozone survive the storm?

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Digital Microscopy at Carl Zeiss: Managing Disruption

Shih, Willy
Harvard Business School Case 613-039

Ulrich Simon, the head of the microscopy business group at Carl Zeiss AG, knew that his unit was facing a disruptive threat, so he chartered a special team to tackle the industrial segment. Given a high degree of autonomy, the project team developed an understanding of the marketplace challenge and proceeded to develop and execute on a new business plan. Simon gave the team ample freedom to develop new processes and priorities appropriate to the market segment needs, but he couldn't help but wonder whether it would continue as a stand-alone unit or he would need to reintegrate it into the mainline business. He also was nervous about the plan itself. The team had established timelines and milestones, but now they had to execute and deliver their first product next year.

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GSK's Acquisition of Sirtris: Independence or Integration? (Abridged)

Stuart, Toby, and James Weber
Harvard Business School Case 813-028

An executive from pharmaceutical company GSK must choose how much to integrate a recently acquired biotechnology firm, Sirtris. Moncef Slaoui, GSK's global head of R&D, championed the acquisition of Sirtris to gain access to its potentially revolutionary science. Slaoui must balance the need to recoup shareholder value after paying a two-times premium for Sirtris with his desire to retain Christoph Westphal, Sirtris's co-founder and CEO, and other key individuals at the company. His desire to protect Sirtris from GSK's size and bureaucracy occurs in a period when GSK has launched major changes in its R&D organization, which focus on decentralizing and externalizing R&D, as well as revamping the resource allocation process to parallel more of a venture capital-based model. The case also explores the views of Christoph Westphal on the early challenges of the integration and the impact GSK was having on Sirtris. Can be used in conjunction with a separate case that focuses on Sirtris's business model.

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