First Look

February 4, 2014

Remaking The Company Before It's Too Late

Arguably Netflix has done it, Kodak has not. Faced with sweeping competitive change, Netflix changed its strategy and has survived to fight another day. Kodak is struggling to rebuild, but its glory days are but a yellow-tinged memory. In the article "The Art of Strategic Renewal," published in MIT Sloan Management Review, authors Andy Binns, J. Bruce Harreld, Charles A. O'Reilly, and Michael L. Tushman proscribe how leaders can transform organizations "proactively without resorting to fear."

Incentivizing Online Collaborators

Figuring out how to motivate workers can be difficult enough in the "real world," but how is it done on the growing number of online collaboration platforms? In a new paper, Karim R. Lakhani and colleagues consider what factors most inspire online teams to begin to collaborate creatively and effectively. One finding: Monetary reward spurs effort levels but not collaboration levels. The research is detailed in From Crowds to Collaborators: Initiating Effort and Catalyzing Interactions Among Online Creative Workers.

Freemium Pricing At Dropbox

Online storage company Dropbox has 200 million users, but only 4 percent—at most—pay for the service. The company's pricing model is taken up in the case, "Freemium Pricing at Dropbox," by Thales S. Teixeira and Elizabeth Anne Watkins. The case examines how Dropbox used freemium pricing to facilitate product adoption and user referrals.

— Sean Silverthlorne


  • August 2013
  • MIT Sloan Management Review

The Art of Strategic Renewal

By: Binns, Andy, J. Bruce Harreld, Charles A. O'Reilly, and Michael L. Tushman

Abstract—In recent years, we have seen well-established companies such as Kodak, Blockbuster, Nokia, and BlackBerry pushed to the brink by smart competitors and changes in their industries. In each case, there were opportunities to act before a crisis engulfed the organization. At Kodak, for example, CEO George Fisher attempted to move the company into the digital era in the 1990s. However, he was unable to change course quickly enough. Fisher had an opportunity; his successor had a crisis. What can leaders do before the depth and scope of their companies' crises come into focus? How can they initiate major transformations proactively? As researchers and managers who have been involved in numerous corporate transformations in recent years, we have learned that applying standard formulae to corporate transformations is, at best, ineffective and, at worst, dangerous. What's needed is a new approach that enables executives to transform organizations proactively without resorting to fear.

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  • August 2013
  • Journal of Development Economics

Political Reservations and Women's Entrepreneurship in India

By: Ghani, Ejaz, William R. Kerr, and Stephen D. O'Connell

Abstract—We quantify the link between the timing of state-level implementations of political reservations for women in India with the role of women in India's manufacturing sector. While overall employment of women in manufacturing does not increase after the reforms, we find significant evidence that more women-owned establishments were created in the unorganized/informal sector. These new establishments were concentrated in industries where women entrepreneurs have been traditionally active and the entry was mainly found among household-based establishments. We measure and discuss the extent to which this heightened entrepreneurship is due to channels like greater finance access or heightened inspiration for women entrepreneurs.

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  • August 2013
  • Journal of Economic Perspectives

Shifts in U.S. Federal Reserve Goals and Tactics for Monetary Policy: A Role for Penitence?

By: Rotemberg, Julio J.

Abstract—This paper considers some of the large changes in the Federal Reserve's approach to monetary policy. It shows that, in some important cases, critics who were successful in arguing that past Fed approaches were responsible for mistakes that caused harm succeeded in making the Fed averse to these approaches. This can explain why the Fed stopped basing monetary policy on the quality of new bank loans, why it stopped being willing to cause recessions to deal with inflation, and why it was temporarily unwilling to maintain stable interest rates in the period 1979-1982. It can also contribute to explaining why monetary policy was tight during the Great Depression. The paper shows that the evolution of policy was much more gradual and flexible after the Volcker disinflation, when the Fed was not generally deemed to have made an error.

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Working Papers

Sovereigns, Upstream Capital Flows and Global Imbalances

By: Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych

Abstract—We decompose capital flows-both debt and equity-into public and private components and study their relationship with productivity growth. This exercise reveals that international capital flows are mainly shaped by government decisions and sovereign-to-sovereign transactions. Specifically, we show (i) international capital flows net of government debt are positively correlated with growth and allocated according to the neoclassical predictions; (ii) international capital flows net of official aid flows, which are mostly accounted as debt, are also positively correlated with productivity growth consistent with the predictions of the neoclassical model; and (iii) public debt flows are negatively correlated with growth only if government debt is financed by another sovereign and not by private lenders. Our results show that the failure to consider official flows as the main driver of uphill flows and global imbalances is an important shortcoming of the recent literature.

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From Crowds to Collaborators: Initiating Effort & Catalyzing Interactions Among Online Creative Workers

By: Boudreau, Kevin J., Patrick Gaule, Karim R. Lakhani, Christoph Riedl, and Anita Williams Woolley

Abstract—Online collaborative platforms have emerged as a complementary approach to traditional organizations for coordinating the collective efforts of creative workers. However, it is surprising that they result in any productive output as individuals often work without direct monetary incentives while collaborating with unknown others. In this paper, we distinguish the conditions necessary for eliciting effort from those affecting the quality of interdependent teamwork. We consider the role of incentives versus social processes in catalyzing collaboration. We test our hypotheses using a unique data set of 260 individuals randomly assigned to 52 teams tasked with developing working solutions to a complex innovation problem over 10 days, with varying monetary incentives. We find that levels of effort are driven by cash incentives and the presence of other interacting teammates. The level of collaboration, by contrast, was not sensitive to cash incentives. Instead, individuals increased their communication if teammates were also actively participating. Additionally, team performance is uniquely driven by the level of emergent interdependence, as indexed by the diversity of topics discussed and the temporal coordination of activity in short focused time periods. Our results contribute to the literature on how alternative organizational forms can be designed to solve complex innovation tasks.

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Abstract—This study empirically investigates the relationship between design structure and organization structure in the context of new infrastructure development projects. Our research setting is a capital program to develop new school buildings in the city of Manchester, UK. Instead of creating a controlled, hierarchical organization, which would mirror the buildings' design structure, the Manchester City Council created a "commons organization," and chose to share decision-rights with local claimants. Each school's faculty was thus given rights equal to Council staff to participate in the design process and to approve the school's design. In the natural resources literature, commons theory predicts that, if a robust governance structure is created, this complex form of organizing gives claimants incentives to contribute to the enterprise whilst dampening collective action problems (Ostrom, 1990). Here we extend this claim to the production of man-made artifacts. The design commons induced teachers to volunteer time and effort to communicate their practical knowledge but created corresponding tensions over interdependent choices for the final design. Yet, none of the projects succumbed to collective action problems in the form of budget overruns, bogged-down processes, or users feeling disenfranchised. Applying Ostrom's (1990) principles of robust commons governance, we show that the Manchester design commons organization was robust by her criteria and propose that robustness contributed positively to the outcome. We also discuss design flexibility as an intervening variable that was critical in reconciling differences that governance alone could not resolve. We conclude with the rudiments of a theory describing when and why a commons organization can be advantageous for production of designs

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Abstract—This paper combines experimental and field data to examine how those with the responsibility to enforce rules may penalize transgressors more harshly when they are faced with a conflicting motivation to be lenient. Specifically, we test how transgressors are punished when it is their birthday: a day when social norms dictate people should be treated preferentially. We first establish that individuals expect leniency on their birthday. We then show that, compared to other days, transgressors are in fact penalized more severely for transgressing rules when it is their birthday, both by law enforcement (using more than 134,000 arrest records for drunk driving in Washington State) and by participants with responsibility to enforce rules in an experimental lab setting. We also show that this effect is driven by psychological reactance. We discuss both the theoretical and practical implications of our findings.

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A Formal Theory of Strategy

By: Van den Steen, Eric

Abstract—What makes a decision strategic? When is strategy most important? This paper studies the structure and value of strategy (in its everyday sense), starting from a (functional) definition of strategy as "the smallest set of (core) choices to optimally guide the other choices." This definition captures the idea of strategy as the core of an intended course of action that is potentially flexible and adaptive. It coincides with the equilibrium outcome of a "strategy formulation game" where a person can-at a cost-look ahead, investigate, and announce a small set of choices to the rest of the organization. Starting from that definition, the paper studies what makes a decision "strategic" and what makes strategy important, considering commitment, irreversibility, and persistence of a choice; the presence of uncertainty (and the type of uncertainty); the number and strength of interactions and the centrality of a choice; its level and importance; the need for specific capabilities; and competition and dynamics. It shows, for example, that irreversibility does not make a decision more strategic but makes strategy more valuable, that long-range strategies will be more concise, that a choice of what not to do can be very strategic, and that a strategy "bet" can be valuable. It shows how strategy endogenously creates a hierarchy among decisions. And it also shows how understanding the structure of strategy may enable a strategist to develop the optimal strategy in a very parsimonious way.

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Abstract—This paper studies how strategy-formally defined as "the smallest set of (core) choices to optimally guide the other choices"-relates to the strategist, for example, whether an optimal strategy should depend on who is CEO. The paper first studies why different people may systematically consider different decisions "strategic"-with marketing people developing a marketing-centric strategy and favoring the marketing side of business-and derives two rational mechanisms for this outcome, one confidence-based and the other implementation-based. It then studies why it matters that it is the CEO and important decision makers (rather than an outsider) who formulate the strategy and shows that outsider-strategists often face a tradeoff between the quality of a strategy and its likelihood of implementation, whereas the CEO's involvement helps implementation because it generates commitment, thus linking strategy formulation and implementation. In some sense, the paper explains why strategy is the quintessential responsibility of the CEO. Moreover, it shows that the optimal strategy should depend on who is CEO. It then turns that question around and studies strategy as a tool for exerting leadership, asking when the set of strategic decisions are exactly the decisions a CEO should control to give effective guidance. It finally shows how a CEO's vision, in the sense of a strong belief, about strategic decisions makes it more likely that the CEO will propose a strategy and that this strategy will be implemented. But strong vision about the wrong decisions, such as subordinate or others' decisions, may be detrimental to strategy and its implementation.

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Cases & Course Materials

  • Harvard Business School Case 814-034

Myomo: Getting Sales in Motion

In late 2012, the management team of Myomo, a startup that had designed a unique myoelectric arm brace for patients with dysfunctional arms, was deciding which of the three sales models the company had tested to pursue as its sales strategy going forward. Each model had its own unique merits and risks. The team planned to fully examine each strategy to determine how to best get the brace into the hands of those who needed it most, the patients, and identify which one enabled Myomo to grow.

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  • Harvard Business School Case 514-067

India's Amul: Keeping up with the Times

Amul is an Indian dairy cooperative founded in 1947, eight months before India's independence from British rule, and owned by over three million farmers in the state of Gujarat. It is India's largest food product marketing organization, selling 46 products, including pouched milk, cheese, butter, ice cream, and infant food through a million retailers across the country as well as being the market leader in almost all the categories in which it operates. Amul is well known among Indian consumers for offering high-quality products at reasonable prices and runs a highly popular advertising campaign that spoofs current events. It offers its farmers 80% of the consumer's dollar for milk, compared with 35% to 40% typical in some Western markets. Amul's cooperative dairy model has been replicated across several Indian states, thereby helping increase the incomes of 80-100 million farmer families across the country. However, despite its success, Amul is beginning to come under increasing pressure. Multinationals like Nestlé and Unilever are increasing their presence in India and competing fiercely with Amul in value-added products like yogurt. The entry of large multi-brand retailers like Walmart and Carrefour in the Indian market threatens to squeeze Amul's margins and undermine its low-cost distribution network. India's large young rural population is shying away from dairy farming in favor of urban jobs, leaving questions about future procurement. Finally, Amul's farmers form a large vote bank in the state of Gujarat, and its cooperative structure risks being compromised by vested political interests. Should Amul continue with the business model that has served it so well for decades; or should it change its strategy in order to keep up with India's changing social, political, and economic landscape?

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  • Harvard Business School Case 814-003

FasterCures: Removing Barriers to Treatments

In mid-2013, as FasterCures celebrated its 10th anniversary as a center of the Milken Institute, Executive Director Margaret Anderson thought about what the organization should do to ensure it had even more impact in its next 10 years. FasterCures was a non-profit "action tank" whose mission was to speed up the process of moving new therapies from discovery to patients in need. Although the annual conference (Partnering for Cures) to improve how government research was organized was a huge success, Anderson considered refocusing resources on greater challenges. For example, current trends in the U.S. showed that investors were increasingly supporting late stage research with higher probabilities of success, while funding for riskier early stage research was drying up. Should FasterCures raise money and direct it toward early stage breakthrough therapies? Another issue was the U.S. clinical trial process system. It's complicated, takes a long time, and is very expensive. Should FasterCures reorganize to better understand this issue and make a high-level push to improve it? Or perhaps the company should look at drug reimbursement decisions. Anderson needed to determine where FasterCures should get fully involved, what it should do, and whether it could make a difference.

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  • Harvard Business School Case 513-098

An Entrepreneur's New Product Development Journey

This case tracks the new product development process undertaken by Gauri Nanda, the founder and CEO of Nanda Home, as she ventures to innovate beyond her initial product launches. Having achieved commercial success with her first product Clocky, a roll away alarm clock that owners interacted with in a way they found functionally and emotionally appealing, and after two extensions of the line, Nanda thought it was time to design, develop, and market another item that would solve an everyday problem with lifelike charm. She wanted to create a clock that would appeal to children and their parents by facilitating kids' going to sleep and waking up routines. However, there were several factors Nanda had to grapple with before she could commit to final manufacturing design and development. Did she conduct sufficient market research to verify the desire for the "Clockiddie" concept and the features planned? Were her assumptions about parents and kids valid to suggest the product would be in high demand once launched? Could she keep a premium price point in a consumer market that was trending downward in willingness to pay? Should she cut back on differentiating features to reduce costs and price? Or could the product be engineered under current specifications to an acceptable cost of goods and retail price point? These decisions had to be made soon so that the product could be launched to meet the back to school buying period.

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  • Harvard Business School Case 714-434

Southwire and 12 For Life: Scaling Up? (A)

Southwire, a leading maker of cable based in rural Georgia, has partnered with the local school system to staff a factory with at-risk high school students. The positive impact on student outcomes has been remarkable, and the factory makes a profit for the company. Now leaders of the effort wonder how they can encourage other businesses to launch similar win-win partnerships with educators.

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  • Harvard Business School Case 514-053

Freemium Pricing at Dropbox

Online storage company Dropbox provided remote storage over the Internet of any type of computer file, along with file sharing, synchronization, and backup. Using a freemium pricing strategy whereby a basic service was free-of-charge and a premium service was paid, Dropbox grew into a business with 200 million users. But only an estimated 1.6% to 4.0% of its users provided any revenue to the company. This case examines how Dropbox used freemium pricing to facilitate product adoption and user referrals. A survey is provided of the cloud-storage industry, including an overview of the largest players and their pricing/service models. Further, various freemium-based companies across industries are compared, including user conversion rates and revenue profiles.

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