Working Papers
The Global Networks of Multinational Firms
| Authors: | Laura Alfaro and Maggie Chen |
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Abstract
In this paper we characterize the topology of global multinational networks and examine the macro and micro patterns of multinational activity. We construct indices of network density at both pairwise industry and establishment level and measure agglomeration in a global and continuous metric space. These indices exhibit distinct advantages compared to traditional measures of agglomeration including the independence on the level of geographic aggregation. Estimating the indices using a new worldwide establishment dataset, we investigate both the significance and causes of multinational firm co-agglomeration. In contrast to the conventional emphasis of the literature on the role of input-output linkages, we assess the effect of various agglomeration economies. We find that, relative to counterfactuals, multinationals with greater factor-market externalities, knowledge spillovers, and vertical linkages exhibit significant co-agglomeration. The importance of these factors differs across headquarters, subsidiary, and employment networks, but knowledge spillovers and capital-market externalities, two traditionally under-emphasized forces, exert consistently strong effects. Within each macro network, there is a large heterogeneity across subsidiaries. Subsidiaries with greater size and higher productivity attract significantly more agglomeration than their counterfactuals and become the hubs of the network.
Download the paper: http://www.hbs.edu/research/pdf/10-043.pdf
Private Equity and Industry Performance
| Authors: | Shai Bernstein, Josh Lerner, Morten Sørensen, and Per Strömberg |
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Abstract
The growth of the private equity industry has spurred concerns about its potential impact on the economy more generally. This analysis looks across nations and industries to assess the impact of private equity on industry performance. Industries where PE funds have invested in the past five years have grown more quickly in terms of productivity and employment. There are few significant differences between industries with limited and high private equity activity. It is hard to find support for claims that economic activity in industries with private equity backing is more exposed to aggregate shocks. The results using lagged private equity investments suggest that the results are not driven by reverse causality. These patterns are not driven solely by common law nations such as the United Kingdom and United States, but also hold in Continental Europe.
Download the paper: http://www.hbs.edu/research/pdf/10-045.pdf
Going Through the Motions: An Empirical Test of Management Involvement in Process Improvement
| Author: | Anita L. Tucker |
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Abstract
Managers play a critical role in process improvement. However, research has found that many improvement efforts fail due to insufficient management involvement. Less is known, however, about mechanisms to foster managers' involvement and their impact on organizational climate, which predicts successful outcomes. We addressed this gap with a field experiment suggested by Toyota's problem-solving process. We tested three related process improvement activities: (1) interacting with workers to learn about problems, (2) ensuring that action is taken to address the problems, and (3) communicating about actions taken. Sixty-nine randomly selected hospitals, 20 of which were randomly selected to engage in the three activities for 18 months, participated in the experiment. Survey results showed that identifying problems had a negative impact on organizational climate while taking action had a positive impact. Results suggest that solving problems as they arise (e.g., Toyota's approach) with intense and substantive actions is more productive than gathering information about large numbers of potential problems to solve (e.g., incident reporting systems). Providing feedback about actions taken negatively impacted frontline workers' perceptions. Qualitative results suggest that communication can backfire when managers go through the motions of process improvement activities without making a sincere effort to resolve staff concerns.
Download the paper: http://www.hbs.edu/research/pdf/10-047.pdf
Publications
Optimal Auction Design and Equilibrium Selection in Sponsored Search Auctions
| Authors: | Benjamin Edelman and Michael Schwarz |
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| Publication: | American Economic Review (forthcoming) |
Abstract
We characterize the optimal (revenue maximizing) auction for sponsored search advertising. We show that a search engine's optimal reserve price is independent of the number of bidders and independent of the rate at which click-through rate declines over positions. We separate the effects of reserve price increases into direct effects (on the low bidder) and indirect effects (on others), and we show that most of the incremental revenue from setting reserve price optimally comes from indirect effects.
Download the paper: http://www.benedelman.org/publications/optimalauction.pdf
Acquisitions as Exaptation: The Legacy of Founding Institutions in the U.S. Commercial Banking Industry
| Authors: | Christopher Marquis and Zhi Huang |
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| Publication: | Academy of Management Journal (forthcoming) |
Abstract
This study focuses on the imprinting of institutional environments, particularly how founding institutions impact intra-organizational capabilities and how such imprints may have different external manifestations in subsequent historical eras. We introduce the concept of exaptation to organizational theory, identifying an important process whereby the historical origin of a capability differs from its current usefulness. Three founding conditions—branching policy, modernization, and political culture—influenced banks' development of capabilities to manage dispersed branches, and these capabilities subsequently led to variation in banks' propensity to engage in acquisitions. Results highlight that founding institutions have a persistent, and sometimes unexpected, impact on organizations' strategies.
Cases & Course Materials
Acciona and the Battle for Control of Endesa
Belen Villalonga and Rachelle Silverberg
Harvard Business School Case 210-029
Acciona, S.A. is a global infrastructure and renewable energy conglomerate that is publicly traded in Spain and controlled by the Entrecanales family. In 2006, the company joined the highly politicized cross-border takeover battle for Spain's largest electric utility, Endesa, by acquiring a 10% stake that it subsequently built up to 21%. Other interested suitors were E.ON and Enel, the largest electric utilities in Germany and Italy, respectively. In March 2007, Acciona's executive chairman Jose Manuel Entrecanales is considering three strategic alternatives: tendering its shares-and realizing a capital gain of €1.2 billion, 13% of Acciona's market capitalization; holding out as a strategic but minority shareholder in Endesa; or negotiating an agreement with Enel and/or E.ON.
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AME Learning Inc.
Thomas Eisenmann and Ann Leamon
Harvard Business School Case 810-065
Justin Joffe is about to graduate from HBS in Spring 2009. He must decide whether to join his father's company, Toronto-based AME Learning, as president working alongside his father who will be CEO. AME has been in business for 12 years, mostly as a small consulting firm doing financial literacy training. Recently, it shifted strategy to provide textbooks for college accounting courses. The Joffes are trying to raise private equity financing, but market conditions have made it difficult and the company is at risk of exhausting the senior Joffe's savings. The case explores the challenges of creating an intergenerational working relationship and asks students to evaluate the alternatives facing the two Joffes as they consider the future for themselves and AME Learning.
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Buro Happold
Robert G. Eccles and Kerry Herman
Harvard Business School Case 409-021
Padraic Kelly became Managing Director (MD) of the engineering services firm Buro Happold in 1996. One of his first initiatives was "Aim for Growth," which was intended to help the firm grow beyond its current size where it was constrained by a structure of having each of the firm's founding partners responsible for a group of 25-30 engineers. This initiative was very successful, but the firm then found itself with a lack of leadership skills at all levels of the organization to manage a company of a much larger size, growing by a factor of 10 over 10 years. In response, Buro Happold developed its first formal internal training programs under the name of "Archimedes Academy." The first two programs were (1) the Job Leader Program, targeted for senior engineers and designed to help them be more effective in working with clients and (2) the Project Leader Program, targeted for project leaders and designed to help them develop the "softer" management skills to complement their technical ones. A distinctive aspect of Archimedes Academy is that these first programs were developed and delivered by the cohors who first attended them. Rather than partner with a university to develop an accredited program, the firm decided it would be better off developing the program itself, with the help of an outside consultant who had done something similar at his previous employer, in order to make sure the programs were specific enough to Buro Happold's needs and relevant to the firm's culture. The first two programs were a big success, and the firm expanded the training offerings under the Archimedes Banner. The case ends with a client, a Middle Eastern city authority, asking Buro Happold Consulting, a new unit created by Padraic Kelly after stepping down as MD in 2006, to develop a training program for them. This request raises the question of whether this internal training capability should become the basis of an external service offering.
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Cisco Acquires Linksys
David F. Hawkins
Harvard Business School Case 110-013
Students must suggest ways to value intangible assets, including trademarks, acquired by Cisco in the Linksys acquisition.
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http://cb.hbsp.harvard.edu/cb/product/110013-PDF-ENG
The Future of Iraq Project (A)
Noel Maurer and Sogomon Tarontsi
Harvard Business School Case 710-002
In March 2009, the government of Iraq decided to hold its first oil field auctions. The auctions were for service contracts on the country's southern oil fields; the winner would obtain the right to produce oil above a certain target for a fixed fee. The bidders competed on the fee charged per barrel and the amount by which they promised to increase production. At the same time, the Kurdish regional government continued to sign Production Sharing Agreements with foreign companies for its oil fields, unrecognized by the national government. In a context of continuing (if much reduced) political violence and legislative deadlock in the national parliament, three actors needed to make key decisions. Jean Claude Gandur, the CEO of Addax Petroleum, needed to decide whether to continue investing in the Kurdish region in light of Baghdad's continuing opposition. The Iraqi oil minister, Hussein al-Shahristani, needed to design the oil auctions in such a way that oil companies would be moved to invest, and invest quickly, despite the lack of a national oil law. Finally, the American secretary of state, Hillary Clinton, needed to decide what Iraqi oil policy would be in the best interest of the United States, and what levers (if any) the U.S. government could pull in order to insure that such a policy would be carried out. What would the three actors decide, and how would their decisions affect the future of Iraq and the world oil market?
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The Future of Iraq Project (B)
Noel Maurer and Sogomon Tarontsi
Harvard Business School Case 710-016
The first round of bidding on the rights to develop Iraq's oil field did not go as planned. All the bidding groups wanted to charge a fee per barrel that the Iraqi government considered too high. As a result, the Iraqi government conducted the auction a second time, this time making it clear that it would not consider fees above $2.00 per barrel. (In addition, the winner needed to deposit $500 million with the Iraqi oil ministry.) Only one bid was accepted: a consortium of the company formerly known as British Petroleum (now BP), the China National Petroleum Company (CNPC), and the Iraqi-state-owned South Oil Company. The consortium had previously bid $3.99 for the same field. It now had to negotiate the actual terms of the contract with the Iraqi government. In addition, the executives in London and Beijing needed to decide whether it made sense to exercise the option they had just purchased. Would they be throwing good money after bad by investing in the Rumaila super-giant field at such a low fee per barrel, or would there be strategic returns down the line?
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The Joslin Diabetes Center
Michael E. Porter, Elizabeth Olmsted Teisberg, and Scott Wallace
Harvard Business School Case 710-424
The Joslin Diabetes Center in Boston, Massachusetts is a leading center for diabetes care, clinician training, and research. The incidence of diabetes is rising precipitously worldwide, challenging quality of life with its complications and rapidly accelerating health care expenditures for employers and governments. The Joslin's multispecialty, team-based care and patient education programs provide opportunities to examine integrated practice units, early-stage and preventive care, and clinical coordination along the full care cycle. The focus on diabetes also enables discussion of what services need to be included in integrated practice units serving patients with complex, chronic diseases. However, despite its renown, the Joslin's clinical operations lose money, raising the challenge of how to align financial success and clinical success in health care delivery. The case can be used to teach strategy in health care delivery, value creation, outcome measurement, reimbursement, and strategic alliances.
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Low-k Dielectrics at IBM
Willy Shih and Giovanni Carraro
Harvard Business School Case 610-023
Innovations at the frontiers of technology carry enormous risk of making wrong choices. This case examines a decision made by IBM in its semiconductor process technology strategy: a material to use as a dielectric insulator in its leading edge silicon chip technology. While at the time of the decision it looked like a good choice, subsequent issues with material properties caused the company to have to switch to an alternative. Though a major disruption, the company was able to recover relatively quickly. The case probes the organizational capabilities and problem solving approaches that enabled that recovery. Missteps when making huge bets at the forefront of scientific innovation are increasingly costly, and the company in effect purchases real options for its R&D strategy by allowing a measured level of concurrent investment in competing alternatives.
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http://cb.hbsp.harvard.edu/cb/product/610023-PDF-ENG
Managing a Global Team: Greg James at Sun Microsystems, Inc. (B)
Tsedal Neeley
Harvard Business School Supplement 410-020
This case updates students on the steps Greg James took to solve the problems that instigated the crisis documented in "Managing a Global Team: Greg James at Sun Microsystems, Inc. (A)." We find out how James solves the process problems involved in his team's breakdown and creates team cohesion to help them function together effectively. We also learn whether or not James is successful in taking his global team to a new level of productivity and customer service.
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Ralph Nader: When Purpose and Legacy Collide
Nitin Nohria and Umaimah Mendhro
Harvard Business School Case 409-117
This case tells the story of Ralph Nader's leadership, from his success as a crusader for consumer interests and active public participation in the political process to his controversial campaigns for the U.S. presidency.
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