First Look

January 30, 2007

China, India, and other rising economies form the backdrop for How Countries Compete, a new book due out in March that shows how countries vie for markets, technologies, and skills. Blending history, analysis, and many interviews, Richard H. K. Vietor challenges conventional wisdom to show how governments create a business environment. In an article from MIT Sloan Management Review, two information technology management specialists discuss how to mitigate the inevitable conflicts between stewards and creators in an innovative company. Their eight guidelines include "Keep talented creators around, although they can be difficult to manage" and "Balance the influence of stewards and creators in the organization, so neither group always wins." Also new this week: a working paper for download on how science can benefit from practices in open source software communities (see our interview with Karim Lakhani); leadership advice from Bill George, former CEO of Medtronic; and designing headquarters to fit the corporate strategy.
— Martha Lagace

Working Papers

Do Employment Protections Reduce Productivity? Evidence from U.S. States


Theory predicts that mandated employment protections may reduce productivity by distorting production choices. Firms facing (non-Coasean) worker dismissal costs will curtail hiring below efficient levels and retain unproductive workers, both of which should affect productivity. These theoretical predictions have rarely been tested. We use the adoption of wrongful-discharge protections by U.S. state courts over the last three decades to evaluate the link between dismissal costs and productivity. Drawing on establishment-level data from the Annual Survey of Manufacturers and the Longitudinal Business Database, our estimates suggest that wrongful-discharge protections reduce employment flows and firm entry rates. Moreover, analysis of plant-level data provides evidence of capital deepening and a decline in total factor productivity following the introduction of wrongful-discharge protections. This last result is potentially quite important, suggesting that mandated employment protections reduce productive efficiency as theory would suggest. However, our analysis also presents some puzzles including, most significantly, evidence of strong employment growth following adoption of dismissal protections. In light of these puzzles, we read our findings as suggestive but tentative.

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Behavioral Decision Research, Legislation, and Society: Three Cases


No abstract available.

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Fashioning an Industry: The Emergence and Evolution of an Established Industry in a New Geographic Region


Most of what organizational scholars know about new industry emergence and entrepreneurship in new industries comes from studies of completely new industries that were born out of technological innovations. We know far less about the emergence of non-technology based industries and about the legitimacy-seeking activities of entrepreneurs in an industry that is transported from one part of the world to another, making it novel only in a new, limited geographic region. In this exploratory and inductive study of the emergence and evolution of the Indian high-end fashion industry and the actions of entrepreneurs in the early days of this industry, I seek to redress these shortcomings of prior organizational research. Based on a series of interviews with designers and individuals associated with the industry, I find that although legitimacy-seeking is an important activity for pioneering entrepreneurs, they are unconsciously aided by other actors who are acting out of self-interest rather than from a desire to actively help these entrepreneurs. Furthermore, entrepreneurs are aided by the fact that the industry is not new to the world, due to which they can adapt and adopt institutional practices already legitimized by counterpart industries in other parts of the world. The paper builds on existing community ecology and social movement perspectives on industry emergence and evolution and adds new dimensions to both, and thus has implications for organizational theory.

The Value of Openness in Scientific Problem Solving


Openness and free information sharing amongst scientists are supposed to be core norms of the scientific community. However, many studies have shown that these norms are not universally followed. Lack of openness and transparency means that scientific problem solving is constrained to a few scientists who work in secret and who typically fail to leverage the entire accumulation of scientific knowledge available. We present evidence of the efficacy of problem solving when disclosing problem information. The method's application to 166 discrete scientific problems from the research laboratories of 26 firms is illustrated. Problems were disclosed to over 80,000 independent scientists from over 150 countries. We show that disclosure of problem information to a large group of outside solvers is an effective means of solving scientific problems. The approach solved one-third of a sample of problems that large and well-known R&D-intensive firms had been unsuccessful in solving internally. Problem-solving success was found to be associated with the ability to attract specialized solvers with range of diverse scientific interests. Furthermore, successful solvers solved problems at the boundary or outside of their fields of expertise, indicating a transfer of knowledge from one field to others.

Download the paper:


Cases & Course Materials

None this week.



True North: Discover Your Authentic Leadership


Based on research and first-person interviews with 130 of the top leaders in business, Bill George—the highly respected former CEO of Medtronic and current Harvard Business School professor—describes how anyone can become an authentic leader. In this leadership tour de force, George presents many surprising conclusions as to what makes a great leader, some of which are actually contrary to previous research.

Readings in Modern Marketing


Readings in Modern Marketing is a collection of Quelch's highly-praised scholarly articles previously published in leading business journals, such Harvard Business Review, Sloan Management Review, Strategy and Business, and Business Horizons, in the past two decades. Topics covered include marketing and business strategy, managing product lines, pricing, managing the point of sales, global marketing, building global brands, marketing and the new technologies, marketing and society, and so forth. A fine representation of the author's sound scholarship, Readings in Modern Marketing offers important theories as well as practical, insightful tactics. It is an indispensable source of reference.

How Countries Compete: Strategy, Structure, and Government in the Global Economy


As the world globalizes, countries compete for the markets, technologies, and skills needed to raise their standards of living. These strategies can make—or break—the government's efforts to drive and sustain growth. In How Countries Compete, Richard Vietor sheds light on ways in which governments can best set direction and provide a healthy climate for a nation's economic development and profitable private enterprise. Drawing on history, economic analysis, and interviews with executives and officials around the globe, Vietor provides concentrated examinations of different approaches to government facilitation of development. Individual chapters focus on the unique social, economic, cultural, and historical forces that shape governments' approach to economic growth. Countries discussed include: China, India, Japan, Singapore, the United States, Mexico, Russia, Saudi Arabia, and South Africa. Vietor challenges the widespread notion that, in market-driven economies such as the United States, a strong government can only hinder business success. A provocative resource, How Countries Compete offers potent insights into how the business environment has evolved in crucial nations—and what its trajectory might look like in the future.

Bridging the Gap between Stewards and Creators


Many technology-intensive companies today depend on employees with specialized technical skills, and managers may not fully understand the work these employees do. Moreover, managers and technical employees may have very different worldviews, and their worldviews may conflict during the process of business innovation.

After researching the movement of Internet and computing pioneers among various organizations during a period between the early 1960s and the mid-1990s, the authors identified two distinct personality types that are both vital to successful technological innovation—but whose mindsets often clash. The authors dub these two types stewards and creators. An organization's stewards are usually managers; their goal is the careful allocation of the organization's resources, with an aim of achieving an optimal return on investment. Creators, on the other hand, are often skilled, specialized employees, and their focus is on a grand vision and mission; they frequently view business concerns as secondary. According to the authors, conflict between stewards and creators is, to some extent, inevitable. However, when such conflict is managed poorly, the organization's capacity to innovate effectively may be impaired.

The authors suggest eight guidelines for managing steward-creator conflict more successfully. These guidelines include (1) Keep talented creators around, although they can be difficult to manage; (2) balance the influence of stewards and creators in the organization, so neither group always wins; (3) cultivate people who have credibility with both creators' and stewards and can help resolve conflicts; (4) use peer review to more accurately evaluate creators specialized technical work; (5) structure the innovation process so that creators produce tangible artifacts regularly; (6) realize that there will always be some conflict between an organization's creators and its stewards; (7) avoid overly prescriptive control mechanisms that may alienate creators; and (8) ensure that closure on projects is achieved neither too quickly nor too slowly.

The Structure, Size, and Performance of Corporate Headquarters


This paper examines the unique functions of corporate headquarters in diversified firms and reports on a survey of the structure and staffing of more than 600 headquarters in Europe, USA, Japan, and Chile. It explores the extent to which corporate headquarters are contingent on size of the company, corporate strategy (corporate portfolio and corporate structure and policies), and governance system (ownership and regulation, and country of origin). The results confirm that factors in each of these areas are important determinants of the size and structure of headquarters.

Performance data suggest that these findings are not merely descriptive but that corporate headquarters should be designed to fit the corporate strategy. Although the results are capable of alternative interpretations, analysis provides no support for the view that "lean and mean" headquarters lead to better performance.

Asset Fire Sales (and Purchases) in Equity Markets


This paper examines institutional price pressure in equity markets using market prices of mutual fund transactions caused by capital flows from 1980 to 2004. Funds experiencing large outflows tend to decrease existing positions, which creates price pressure in the securities held in common by distressed funds. A similar phenomenon exists among funds experiencing large inflows: their tendency to expand existing positions creates positive price pressure in overlapping holdings. We find that investors who trade against constrained mutual funds earn significant returns for providing liquidity. In addition, future flow-driven transactions are predictable, creating an incentive to front-run the anticipated forced trades by funds experiencing extreme capital flows.

Normas Contables Bancarias en México. Una guía de los cambios para legos diez años después de la crisis bancaria de 1995


After the 1995 crisis, the Mexican banking system experienced significant changes in bank accounting standards. Most of these changes took place between 1996 and 2001, and had a significant impact in the structure and interpretation of financial information of banks. This document explains the major changes on bank accounting, their purpose and structure, and discusses their impact on financial information reported by Mexican banks. It also provides the English equivalent of the major accounting terms used by Mexican banks. The main purpose of this document is to provide a standardized guide to better understand financial information produced before and after the crisis, within the current context of internationalization of Mexican banks' ownership.

(In Spanish): Después de la crisis de 1995 el sistema bancario mexicano experimentó cambios considerables en sus normas contables. La mayoría de estos cambios ocurrió entre 1996 y 2001, y tuvo un gran efecto en la estructura y la interpretación de la información financiera de los bancos. Este documento explica los cambios principales en la contabilidad bancaria, su propósito y estructura, y analiza su efecto en la información financiera presentada por los bancos mexicanos. También proporciona el equivalente en inglés de los principales términos contables utilizados por los bancos mexicanos. El propósito principal de este documento es ofrecer una guía estandarizada para entender mejor la información financiera producida antes y después de la crisis, en el contexto actual de la internacionalización de la propiedad de los bancos mexicanos.

The Competitive Advantage of Management Accounting


The article discusses the role for management accounting systems to align and focus organizational resources. It describes the economic foundations of activity-based costing and balanced scorecard, as generalized supply and demand curves. It argues, however, that management accounting systems should not be viewed solely through an economic/social science lens but as constructed phenomena, closer to engineering, where managers design cost and performance measurement systems to meet organizational objectives.