First Look

October 10, 2007

One-size-fits-all medical regimens may be breathing their last. "Personalized" medicine—in the form of targeted treatments based on patients' individual profiles—is increasingly viewed as both more effective for the patient and profitable for the provider, though it faces significant barriers in practice. As HBS professor Richard G. Hamermesh and Genzyme Genetics president Mara G. Aspinall write in the October issue of Harvard Business Review, "To be sure, there is no alternative to trial-and-error medicine for scores of diseases because of profound gaps in knowledge about their causes, about the biological markers of their presence or stage, and about the factors that influence the effectiveness of possible remedies. What is alarming, though, is the degree to which the trial-and-error approach persists even when this knowledge does exist." Current barriers, in their view, are the blockbuster model of drug development used by pharmaceutical firms, a regulatory environment that is accustomed to large-scale clinical trials, and payment systems that reward procedures rather than accurate and effective diagnosis. Change may come from the ground up by educating physicians in genomics, diagnostic testing, and targeted treatments. Also new this week: Professor Alvin E. Roth in Harvard Business Review discusses the challenges of designing new markets; new working papers for download; and a case on project management writ large: how Athens got ready for the 2004 Olympic Games.
— Martha Lagace

Working Papers

Testing Limits to Policy Reversal: Evidence from Indian Privatizations


We examine the effect of regime change on privatization using the 2004 election surprise in India. The pro-reform BJP was unexpectedly defeated by a less reformist coalition. Stock prices of government-controlled companies that had been slated for definite privatization by the BJP dropped by 3.5 percent relative to private firms. Surprisingly, government-controlled companies that were only under study for possible privatization fell by 7.5 percent relative to private firms. We interpret this as evidence of investor belief of policy irreversibility, where reforms may reach a stage beyond which future regimes have difficulty reversing those policies. Further analysis suggests that layoffs, combined with the privatization announcement, served as a credible commitment to the government's privatization agenda.

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Mental Accounting and Small Windfalls: Evidence from an Online Grocer


We study the effect of small windfalls on consumer-spending decisions by examining the purchasing behavior of a sample of online grocery shoppers over the course of a year. We compare the purchases customers make when redeeming a $10-off coupon they received from their online grocer with the purchases the same customers make when shopping without a coupon. The standard permanent income or lifecycle theory of consumption predicts that grocery spending will be unaffected by the use of a $10-off coupon, while a simple mental accounting framework predicts that such a coupon will increase spending on groceries. Controlling for customer-fixed effects and other relevant variables, we find that grocery spending increases by $1.59 with the use of a $10-off coupon. In addition, even though the receipt of a $10-off coupon does not correspond to a meaningful increase in wealth, the extra spending associated with the redemption of such a coupon is focused on "marginal" grocery items, or grocery items that a customer does not typically buy.

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The Causes and Consequences of Industry Self-Policing


Several innovative regulatory programs are encouraging firms to police their own regulatory compliance and voluntarily disclose, or "confess," the violations they find. Despite the "win-win" rhetoric surrounding these government voluntary programs, corporate confessions presents something of a behavioral paradox. Tasked with monitoring the legality of its own operations, why would firms that identify violations turn themselves in to regulators rather than quietly fix the problem? And why would regulators entrust regulated entities to monitor their own compliance and enforce the law against themselves? This paper addresses these questions by investigating the factors that lead organizations to self-disclose violations, the effects of self-policing on regulatory compliance, and the effects of self-disclosing on the behavior of regulators. We investigate these research questions in the context of the U.S. Environmental Protection Agency's Audit Policy.

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Cases & Course Materials

Gianna Angelopoulos-Daskalaki and the 2004 Athens Olympic Games (A)

Harvard Business School Case 407-050

Gianna Angelopoulous-Daskalaki led the bidding organization that secured the 2004 Olympics for Athens and then later the preparations for those Games. Tracks her leadership style and how she and her team won the bid. After substantial planning problems threatened to cost Greece the Olympics, Angelopoulos was asked to take over the preparations, with only 4 of the 7 years remaining. Ends with the question of what she needs to consider in making the decision to take over the Games' preparations, what role she should play, and where she should start.

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Gianna Angelopoulos-Daskalaki and the 2004 Athens Olympic Games (B)

Harvard Business School Supplement 407-051

Supplements the (A) case.

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Negotiation Strategy: Pattern Recognition Game

Harvard Business School Note 908-015

In negotiation, correctly identifying your counterpart's strategy is vital. Only then can you constructively influence their behavior—or adapt appropriately to what they are doing. This case—and its related computer-based exercise (Negotiation Strategy Simulation)—illuminate how through a thoughtful process of probing and testing, a negotiator may determine whether the other party tends to be cooperative or competitive. The material also demonstrates how the benefit of such learning must be weighed against the possible costs of being provocative.

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Octone Records

Harvard Business School Case 507-082

In February 2007, Octone Records founders James Diener, Ben Berkman, and David Boxenbaum had been highly successful with the first two bands they had signed, Maroon 5 and Flyleaf. Known for its grassroots marketing campaigns, Octone operated through a unique joint-venture model with SonyBMG Music Entertainment's RCA Music Group, which enabled the nimble record label to orchestrate mass-marketing campaigns once an artist was ready for "prime time." Octone had been less fortunate, however, with its third act, Michael Tolcher. Despite significant investments, Tolcher's first full album had not sold enough copies to recover its costs and merit RCA's marketing support. Octone's executives faced a decision: whether to continue to support Tolcher's first album, increase the stakes by financing a second album, or cut their losses and instead focus on other artists. At the same time, Octone had to evaluate a proposal from Universal Music Group to buy out SonyBMG's interest in the joint venture. Allows for an in-depth examination of new product development and launch strategies in the context of the music industry. Provides rich insights into how grassroots and mass-marketing approaches can facilitate new product/artist development. Octone's "hybrid" marketing structure is described in considerable detail, and supporting economic data is provided. By enabling an analysis of how long and how aggressively an artist should be supported before commercial success is achieved, serves as a vehicle for contrasting different approaches to the new product development process.

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Realizing the Promise of Personalized Medicine


Scientific advances have begun to give doctors the power to customize therapy for individuals. However, adoption of this approach has progressed slowly and unevenly because the trial-and-error treatment model still governs how the health care system develops, regulates, pays for, and delivers therapies. Aspinall, the president of Genzyme Genetics, and Hamermesh, Faculty Chair of the Harvard Business Healthcare Initiative, discuss the barriers to personalized medicine and suggest ways to overcome them. The blockbuster model for developing drugs, the authors point out, is still what most major pharmaceutical companies follow, even though its days are numbered. What the industry must embrace in its place is a business model based on a larger portfolio of targeted—and therefore more effective and profitable—treatments, not a limited palette of one-size-fits-all drugs. The current regulatory environment overemphasizes large-scale clinical trials of broad-based therapies. Instead, the focus should be on enrolling subpopulations, based on diagnostic testing, in trials of targeted drug treatments and on monitoring and assessing effectiveness after drugs are approved. A dysfunctional payment system complicates matters by rewarding providers for performance of procedures rather than for accurate diagnosis and effective prevention. Aspinall and Hamermesh call for coordinating regulation and reimbursement so that incentives are provided for the right outcomes. Finally, the authors urge changing physicians' habits through education about genomics, diagnostic testing, and targeted therapies. They say that medical schools and physician organizations must become committed advocates of personalized medicine so that patients and the medical industry can get all the benefits it offers.

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R&D Project Selection and Portfolio Management: A Review of the Past, a Description of the Present, and a Sketch of the Future


The selection of R&D projects has been recognized as an important problem since the 1950s and 1960s, and its importance has grown with intensifying global competition and accelerating technological change. Academics and practitioners have proposed hundreds of techniques to help managers decide which projects to fund. Yet despite the volume of proposed solutions, project selection has turned out to be an extremely difficult problem. A few selection techniques have become popular in industry, but none has proved wholly satisfactory. Given this context of an unsolved managerial and academic problem, we develop a review of existing literature, a description of current managerial challenges, and a sketch of future research opportunities.

Corporate Social Responsibility Strategy and Boards of Directors Boardroom Briefing


Companies today face increasing demands for corporate social responsibility (CSR). Correspondingly, they have important new opportunities to build business value through judicious choices and actions to improve social and environmental conditions in the communities in which they do business. Whereas firms once might have been able to prosper by concerning themselves almost exclusively with financial results, most now find it at least prudent—and many are finding it directly valuable—to manage a wider array of the impacts that they generate (or can influence), from environmental conditions to employee health and safety to social conditions like the quality of public education.

How can boards best organize themselves and act so as to add perspective and value in these matters? First, they must develop the capacity to examine and evaluate individual CSR-oriented actions, a process that requires both an understanding of the motivation behind them and an assessment of their impact on society and on the firm. Second, they need to ensure that the firm's CSR activities constitute a coherent and effective CSR strategy. Third, they have to see to it that their firm's CSR strategy and decision-making are integrated into the company's overall strategy.

The Governance of New Firms: A Functional Perspective

No abstract available.

Governance in the Global Information Economy


In the early 21st century, IT has become more important than ever. Technology evolution, the creation of new channels to global resource pools, increased corporate operational dependence on IT, and enhanced application opportunities have combined to drive this topic much higher on many companies' agendas. Different companies are impacted in different ways. Embedded in this chapter are two analytical frameworks often used by managers to understand this different impact; namely, the strategic grid and technological learning. Some aspects of IT have remained unchanged over a 40-year period. These include the constant emergence of new technologies, the obsolescence of technical skills, and the need for strong leadership. For many firms, however, this technology now has a much deeper impact on the transformation of their operations than could have been conceived several decades ago. The chapter successively describes how Otis, World Bank, COSCO and Cathay Pacific have each been utterly transformed by IT.

Putting Codes into Perspective

No abstract available.

The Art of Designing Markets


Traditionally, markets have been viewed as simply the confluence of supply and demand. But to function properly, they must be able to attract a sufficient number of buyers and sellers, induce participants to make their preferences clear, and overcome congestion by providing both enough time to make choices and a speedy means of registering them. Solutions to these challenges are the province of market design—a blend of game theory and experimental economics. Roth, a professor of both business and economics at Harvard, is a leading market designer. He and his colleagues have rescued failing markets by, for example, designing labor clearinghouses through which U.S. doctors get their first jobs and auctions through which the Federal Communications Commission sells licenses for parts of the radio broadcast spectrum. They have also created market-like allocation procedures that involve neither prices nor an exchange of money; these include systems for assigning children to schools in Boston and New York and for facilitating exchanges of kidneys. Computers enable the design of "smart markets" that combine the inputs of users in complex ways: In kidney exchange, they run through every possible match of donors and recipients to arrange the greatest possible number of transplants. In the future, computers may make it possible to auction bundled goods, such as airport takeoff and landing slots. As online markets—like those for jobs and dating—proliferate, a growing understanding of markets in general will provide virtually limitless opportunities for market design.

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When Learning and Performance Are at Odds: Confronting the Tension


This chapter explores complexities of the relationship between learning and performance. We start with the general proposition that learning promotes performance and then describe several challenges for researchers and managers who wish to study or promote learning in support of performance improvement. We also review psychological and interpersonal risks of learning behavior, suggest conditions under which exploratory learning and experimentation are most critical, and describe conditions and leader behaviors conducive to supporting this kind of learning in organizations. We illustrate our ideas with examples from field studies across numerous industry contexts, and conclude with a discussion of implications of this complex relationship for performance management.