First Look

December 21, 2010

Business in the private prison industry is drying up. A new case looking at growth options for Corrections Corporation of America begins with the fact that the company's profits are under attack as its largest customers—federal and state governments—are under pressure to reduce incarceration rates and lower operating costs. The case, written by Rafael Di Tella and Laura Winig, asks: Should CCA follow its competitors' footsteps and expand overseas? Or could it count on an ever-increasing population of US prisoners to fuel continued growth?

In a forthcoming Negotiation Journal article, James K. Sebenius questions what can be learned by analyzing "great negotiations" through history. Quite a lot, he suggests, including the finding of complex realities and subtleties that might have gotten lost in analytic models. Another journal article, this one in Organization Science, looks at why managers send the same message to the same recipient sequentially using various communication methods, such as e-mail and face-to-face. "Given how busy most managers are, and how much information their subordinates receive on a daily basis, this practice seems, initially, quite puzzling." But the answers are quite interesting. The article is based on the work described in this working paper written by Paul M. Leonardi, Tsedal B. Neeley, and Elizabeth M. Gerber.



Has the Shift to Stronger Intellectual Property Rights Promoted Technology Transfer, FDI, and Industrial Development?


This article reviews recent research conducted by the authors that finds that intellectual property rights reform increases technology transfers, foreign direct investment inflows, and industrial development. It also places the findings of this work in the broader context of the literature.

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Luck or Cheating? A Field Experiment on Honesty with Children


We run an experiment to study the relationship between honesty, age, and self-control. We focus on children aged between 5 and 15 as the literature suggests that self-control develops within such age range. We ask each child to toss a fair coin in private and to record the outcome (white or black) on a paper sheet. We only reward children who report white. Although we are unable to tell whether each child was honest or not, we speculate about the proportion of reported white outcomes. Children report the prize-winning outcome at rates statistically above 50% but below 100%. Moreover, the probability of cheating is uniform across groups based on the child's characteristics, in particular age. In a second treatment we explicitly tell children not to cheat. This request has a dampening effect on their tendency to over-report the prize-winning outcome, especially in girls. Furthermore, while this effect in boys is constant with age, in girls it tends to decrease with age.

Temptation and Productivity: A Field Experiment with Children


Substantial evidence from psychology suggests that resisting temptation (exercising self-control) in one domain subsequently reduces one's capacity to regulate behavior in other domains. One reason is that people have limited self-regulatory resources, and self-regulatory failure occurs when these resources become overwhelmed. This paper provides evidence that this same mechanism can lead to reduced economic productivity subsequent to exposure to temptation. Using a design inspired by the classic "Marshmallow Test," we report data from a field experiment in which children between the ages of 6 and 13 were exposed (or not) to a consumption temptation. We use these ages to take advantage of the well-established fact that the self-regulatory resources of younger children are more easily depleted than those of older children. We find that, subsequent to exposure to temptation, productivity of younger children is significantly detrimentally impacted, while that of older children remains essentially unchanged. To our knowledge, this is the first rigorous demonstration that one need not succumb to temptation in order for it to detrimentally impact one's economic productivity.

The Dynamics of Social Structure: The Emergence and Decline of Small Worlds


This paper explores the interplay between social structure and economic action by examining some of the evolutionary dynamics of an emergent network that coalesces into a small-world system. The study highlights the small-world system's evolutionary dynamics at both the macro level of the network and the micro level of an individual actor. This dual analytical lens helps establish that, in competitive and information-intensive settings, a small-world system could be a highly dynamic structure that follows an inverted U-shaped evolutionary pattern, wherein an increase in the small-worldliness of the system is followed by its later decline as a result of three factors: (1) the recursive relationship between the evolving social structure and individual actors' formation of bridging ties, which eventually homogenizes the information space and decreases actors' propensity to form bridging ties, creating a globally separated network; (2) self-containment of the small-world network, or increasing homogenization of the social system, which makes the small world less accepting of and less attractive to new actors, thereby limiting formation of bridging ties to outside clusters; and (3) fragmentation of the small-world network, or the small-world system's inability to retain current clusters. The study uses data on interorganizational tie formation in the global computer industry in the period from 1996 to 2005 to test the hypothesized relationships.

How Managers Use Multiple Media: Discrepant Events, Power and Timing in Redundant Communication


Several recent studies have found that managers engage in redundant communication; that is, they send the same message to the same recipient through two or more unique media sequentially. Given how busy most managers are, and how much information their subordinates receive on a daily basis, this practice seems, initially, quite puzzling. We conducted an ethnographic investigation to examine the nature of events that compelled managers to engage in redundant communication. Our study of the communication patterns of project managers in six companies across three industries indicates that redundant communication is a response to unexpected endogenous or exogenous threats to meeting work goals. Managers employed two distinct forms of redundant communication to mobilize team members toward mitigating potentially threatening discrepant events—unforeseen disruptive occurrences during the regular course of work. Managers with positional power over team members reactively followed up on a single communication when their attempt to communicate the existence of a threatening discrepant event failed, and they determined that a second communication was needed to enable its joint interpretation and to gain buy-in. In contrast, managers without positional power over team members proactively used redundant communication to enroll team members in the interpretation process—leading team members to believe that they had come up with the idea that completion of their project was under threat—and then to solidify those interpretations. Moreover, findings indicate that managers used different types of technologies for these sequential pairings based on whether their motivation was simply to transmit a communication of threat or to persuade people that a threat existed. We discuss the implications of these findings for theory about, and the practice of, technologically mediated communication, power, and interpretation in organizations.

Zwischen Familienerbe und globalem Markt. Eigentum und Management von groβen westdeutschen Familienunternehmen im Wandel (1960-2008). (Between Family Heritage and Global Market. Changes in Ownership and Management of Large West German Family Firms (1960-2008)."


Large family firms fall between two theoretical accounts. They neither follow the development path described by Alfred D. Chandler nor do they resemble small- and medium-sized Mittelstand firms, which Gary Herrigel highlighted as a successful alternative. That is why so far there has been little research about them beyond individual case studies. This article focuses on large family firms in Germany during the second half of the twentieth century. Based on a regionally focused sample of 310 businesses, the article offers insights into their ownership and management in 1960 and asks how the firms developed until 2008. The majority of large family firms had surprisingly homogenous characteristics, such as concentrated long-term family ownership, few shareholders, and family management. This structure was successful within the historical context of the 1960s but came under attack during the crisis-ridden decades that followed. By tracing these changes, the paper simultaneously shows that the theoretical dichotomy of family and managerial firms is misleading. Instead of interpreting the family firm as a static organization, the focus should shift to the family influence, which evolves with time and with the evolution of business's macroeconomic and political environments.

Active Experimentation: Enabling Reliability, Validity, and Knowledge Spill-ins through Inferential Learning Activities


This exploratory study examines the role of intraorganizational knowledge spill-ins in the process of inferential learning. Drawing on the notions of knowledge reliability (the creation of shared meanings) and validity (understandings of cause and effect), we explore how organizations learn inferentially in dynamic environments, where active experimentation rather than past experience is the underlying basis for learning. We find that intraorganizational knowledge spill-ins transfer heuristics crafted by one unit under local conditions of reliability and validity to other units, where they are reinterpreted and repurposed. Intraorganizational knowledge spill-ins emerge as a mechanism through which reliability and validity are enhanced for organizational learning

Race at the Top: How Companies Shape the Inclusion of African Americans on Their Boards in Response to Institutional Pressures


Drawing on institutionalist theory, we conceptualize the racial composition of the boards of directors of large American companies as shaped in response to social and political norms. We use new longitudinal and cross-sectional data to test hypotheses about factors that shape the degree of racial inclusion on boards of directors among large public corporations, and we draw upon in-depth interviews with key participants to gain insights into the mechanisms that are likely to have generated the patterns we detect in our statistical models. We find evidence suggesting that large American corporations manage the racial composition of their elite leadership groups in response to these norms.

What Can We Learn from 'Great Negotiations'?


What can one legitimately learn—analytically and/or prescriptively—from detailed historical case studies of "great negotiations," chosen more for their salience than their analytic characteristics or comparability? Taking a number of such cases compiled by Stanton (2010) as a point of departure, this article explores this question, highlighting the limits of such historical accounts but observing that they can (1) bring to light complex realities and subtleties that parsimonious analytic models may neglect; (2) suggest overlooked, non-obvious aspects of the process that merit deeper, more systematic study, especially where they appear to contradict received theory; and/or (3) reinforce the findings of more systematic investigations, giving greater confidence in their validity. Learning from such accounts calls for a "Bayesian" mindset, in which a given case study, of the kind produced by Stanton, constitutes a multidimensional observation to be compared and combined with substantial "prior" knowledge and reliable bodies of research.

Vietnam Competitiveness Report 2010


The 2010 Vietnam Competitiveness Report contains a broad assessment of Vietnam's current competitiveness, an analysis of the key challenges and opportunities ahead, and a proposal for an economic strategy to enable Vietnam to reach a higher level of sustainable growth. The Report has been developed by Vietnam's Central Institute for Economic Management and the Singapore-based Asia Competitiveness Institute upon the request of Deputy Prime Minister Hoang Trung Hai.

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Working Papers

Inside the Learning Curve: Customer-, Domain-, and Technology-Specific Learning in Outsourced Radiological Services


We explore the specificity of volume-based learning in an outsourced setting. When producing a unit of output, the content of the knowledge gained can vary dramatically from one unit to the next. This suggests that while aggregate experience in learning-by-doing is generally valuable, not all prior experience has an equal impact on performance. To examine these differences we introduce a framework to unpack the multiple dimensions of experience that exist within one unit of work. We then empirically examine the customer-, domain-, and technology—specificity of learning. Our empirical setting is the context of outsourced radiological services where individual doctors at an outsourcing firm complete radiological reads for hospital customers. We find that customer-, domain-, and technology-specific experience—as compared to other experience-leads to improved productivity. We discuss the implications of our results for the study of learning and experience, as well as for outsourcers and the firms that use their services.

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A Note on Fairness and Redistribution


We note some problems in Alesina and Angeletos (2005) and suggest a way to maintain the key insight of that paper, which is that a demand for fairness could lead to different economic systems such as those observed in France versus the U.S. (multiple equilibria).

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A Brief Postwar History of U.S. Consumer Finance


This article describes the consumer finance sector in the U.S. since World War II. We first define the sector in terms of the functions delivered by firms (payments, savings/investing, borrowing, managing risk, and providing advice). We provide time series evidence on major trends in consumption, savings, and borrowing. Examining consumer decisions, changes in regulation, and business practices, we identify four major themes that characterize the sector: (1) innovation that increased the choices available to consumers; (2) enhanced access in the form of broadening consumer participation in financial activities; (3) do-it-yourself consumer finance, which allowed and forced consumers to take greater responsibility for their own financial lives; and (4) the resultant increase in household risk taking.

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Cases & Course Materials

Red Lobster

David E. Bell and Jason Riis
Harvard Business School Case 511-052

Red Lobster, a 40-year-old chain of seafood restaurants, has just completed some market research revealing an opportunity to shift its target customer segment. The chain is in the final stages of a 10-year plan of rejuvenation under CEO Kim Lopdrup. When he took over as CEO in 2004 the chain was closing restaurants and suffering declining same-store sales and declining customer satisfaction. But in 2010, even in a recession, the fortunes of the chain are improving. A recently commissioned market research study has revealed, unexpectedly, that 25% of Red Lobster's customers are "experientials," people coming for a "good evening out" rather than Red Lobster's traditional core customer who came because of a craving for seafood. Should this news cause Lopdrup to do anything differently?

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Hôpital de Pontoise

Richard Bohmer, Daniela Beyersdorfer, and Simon Harrow
Harvard Business School Case 610-100

In 2010, Andre Razafindranaly, managing director of a large French public hospital, considers which organizational structure will help them adjust to the changing health sector environment. The move from global budget to activity-based funding has led his and many other public hospitals to suffer losses in recent years. Appointed two years previously, Razafindranaly introduced increasing financial control and encouraged organizational changes such as multidisciplinary wards differentiated by patients' lengths of stay. To what extent should he (and can he) reinforce these measures, which have increased efficiency and reduced the deficit but also generated push-back from his doctors and staff?

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The Market for Prisoners: Business, Crime, and Punishment in the 'American Dream'

Rafael Di Tella and Laura Winig
Harvard Business School Case 710-042

In 2010, Corrections Corporation of America (CCA), the largest private prison operator in the U.S., was considering expansion options. The company's largest customers, federal and state governments, were under economic pressure to reduce the incarceration rate and lower operating costs, potentially jeopardizing CCA's profits. Should CCA follow its competitor's footsteps and expand overseas? Or could it count on an ever-increasing population of U.S. prisoners to fuel continued growth?

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Dow's Bid for Rohm and Haas

Benjamin C. Esty and David Lane
Harvard Business School Case 211-020

This case analyzes Dow Chemical Company's proposed acquisition of Rohm and Haas in 2008. The $18.8 billion acquisition was part of Dow's strategic transformation from a slow-growth, low-margin, and cyclical producer of basic chemicals into a higher-growth, higher-margin, and more stable producer of performance chemicals. Simultaneously, Dow had signed a joint venture agreement with Petrochemical Industries Company (PIC) of Kuwait, a deal that would generate $7 billion in cash that could be used to finance the all-cash offer to buy Rohm and Haas. Dow and Rohm announced the Rohm merger on July 10, 2008, just before the financial crisis in September 2008. The focus of the case is on what happened after the financial crisis turned into a global economic crisis. Dow, like all chemical producers, suffered as the global economy fell into recession during the second half of 2008 and as financial markets froze. To make matters worse, PIC cancelled the joint venture with Dow in December 2008. As a result, Dow was hurt on three fronts: first, it lost an important funding source for the proposed acquisition; second, Dow's financial condition and internal cash flow deteriorated dramatically (its stock price was down more than 70% during 2008); and third, Rohm's forecast sales, earnings, and value declined precipitously thereby reducing its attractiveness as an acquisition target. Given this confluence of events, Dow sued to cancel the merger agreement with Rohm in January 2009. Rohm responded with its own lawsuit to force consummation of the deal. As of February 2009, Dow's board of directors and its CEO Andrew Liveris have to decide what to do first and foremost about the Rohm acquisition and the pending lawsuits, but also about the firm's declining financial performance and the PIC joint venture.

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Rupert Murdoch: The Last Tycoon

Geoffrey G. Jones and Hari Balkrishna
Harvard Business School Case 811-017

The case examines the entrepreneurial career of Rupert Murdoch and the growth of News Corporation from a small Australian newspaper to a global media giant. It shows how he expanded geographically to Europe, the United States, and Asia and from newspapers to the film and television industries. The case identifies the personal role of Murdoch in this growth and the role of his family in its management. The case considers the political impact of News Corporation's newspapers and other media and their alleged role in shaping political opinion.

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Hony, CIFA, and Zoomlion: Creating Value and Strategic Choices in a Dynamic Market

Josh Lerner and Yiwen Jin
Harvard Business School Case 811-032

The private equity group Hony Capital considers what to do with their investment in Zoomlion, which has been successful to date. The question is whether to take their money off the table or to invest in their acquisition of a large Italian competitor.

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AdMob (A)

Mikołaj Jan Piskorski, Samuel Cohen Mobily-Guitta, and Nithya Vaduganathan
Harvard Business School Case 711-406

AdMob's CEO is deciding between international expansion and increasing the number of publishers to strengthen the company's advantage in the mobile advertising industry. AdMob displayed advertising on global devices, powered 6,000 websites and 1,000 applications, and served over 6 billion advertising impressions a month to 25 million unique visitors. AdMob's success attracted numerous competitors, such as Millennial Media and Quattro Wireless, both of which were expanding quickly and had raised considerable capital. The company now needs to allocate its limited resources wisely to position it for long-term success.

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Mid-Missouri Energy: Ethanol from Corn

Forest Reinhardt, Noel Michele Holbrook, James Weber, and Karla Sartor
Harvard Business School Case 711-004

Mid-Missouri Energy (MME) is a farmer-owned cooperative that produces ethanol from corn. The cooperative has performed well in comparison to other producers, but margins in the industry had declined as industry production levels neared market demand limits. MME farmers needed to decide whether to take advantage of their success and expand through acquisitions, whether they should sell the plant, or whether they should continue current operations. MME must consider ongoing regulatory changes that impacted the industry, the possible impact of imported ethanol, the power of the petroleum industry that bought its product, and ongoing uncertainty about corn and ethanol price swings.

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Reverse Engineering, Learning, and Innovation

Willy Shih
Harvard Business School Note 611-039

This background reading looks at reverse engineering in the context of piracy and knock-offs in emerging markets like China. It first considers legal aspects of reverse engineering in strong property rights regimes like the United States as a way of unpacking the legal issues. It considers the importance of tacit or unexposed knowledge, and whether modularizing a system facilitates the recovery of design intent. Finally we look at the role of reverse engineering in the development of capabilities and how it enhances a firm's absorptive capabilities. It is intended to be used as a background reading for the case "From Imitation to Innovation: Zongshen Industrial Group," HBS No. 610-057.

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