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    First Look: March 17

    First Look

    17 Mar 2015

    The Lowly Thermostat Enters The Digital Age

    Thermostats, which regulate heating and cooling in homes and commercial properties, have largely been mechanical affairs with a drop of mercury for activation. But with the arrival of Google's Nest thermostats and competiting devices, thermostats are quickly becoming a digital nerve center in the modern home. The case "The Thermostat Industry: Transformation from Analog to Digital," by Karim Lakhani, Kerry Herman, and Christine Snively, "presents an overview of key industry participants and the shift in value creation and value capture models for firms."

    Can R&d Projects Have Too Many Partners?

    Research & Development often involves the yoking together of multiple partners to work on very complex problems. In a paper published by the Journal of Operations Management, Alan MacCormack and co-authors use data from 147 multipartner projects to look at how scale and scope affect the performance of partners.

    How Long Is "growth Hacking" Sustainable?

    The case "Growth Hacking at Bazaart," about an Israeli photo app developer having difficulty raising money, joins the four founders as they debate the familiar question of whether to monetize sooner or later. They've used the process of "growth hacking" to achieve a million downloads at minimal cost, but how much further can they go with this technique?

    —Sean Silverthorne
    LinkedIn
    Email
     

    Publications

    • March 2015
    • Journal of Financial Economics

    Banks as Patient Fixed-Income Investors

    By: Hanson, Samuel G., Andrei Shleifer, Jeremy C. Stein, and Robert W. Vishny

    Abstract—We examine the business model of traditional commercial banks when they compete with shadow banks. While both types of intermediaries create safe "money-like" claims, they go about this in different ways. Traditional banks create money-like claims by holding illiquid fixed-income assets to maturity, and they rely on deposit insurance and costly equity capital to support this strategy. This strategy allows bank depositors to remain "sleepy": they do not have to pay attention to transient fluctuations in the market value of bank assets. In contrast, shadow banks create money-like claims by giving their investors an early exit option requiring the rapid liquidation of assets. Thus, traditional banks have a stable source of funding, while shadow banks are subject to runs and fire-sale losses. In equilibrium, traditional banks have a comparative advantage at holding fixed-income assets that have only modest fundamental risk but are illiquid and have substantial transitory price volatility, whereas shadow banks tend to hold relatively liquid assets.

    Publisher's link: http://www.people.hbs.edu/shanson/banks_20150305_FINAL.pdf

    • March 2015
    • Production and Operations Management

    Managing the Performance Tradeoffs from Partner Integration: Implications of Contract Choice in R&D Projects

    By: MacCormack, Alan, and Anant Mishra

    Abstract—Formal contracts represent an important governance instrument with which firms exercise control of and compensate partners in R&D projects. The specific type of contract used, however, can vary significantly across projects. In some, firms govern partnering relationships through fixed-price contracts, whereas in others, firms use more flexible time and materials or performance-based contracts. How do these choices affect the costs and benefits that arise from greater levels of partner integration? Furthermore, how are these relationships affected when the choice of contract is misaligned with the scope and objectives of the partnering relationship? Our study addresses these questions using data from 172 R&D projects that involve partners. We find that i) greater partner integration is associated with higher project costs for all contract types; ii) greater partner integration is associated with higher product quality only in projects that adopt more flexible time and materials or performance-based contracts; and iii) in projects where the choice of contract is misaligned with the scope and objectives of the partnering relationship, greater partner integration is associated with higher costs, but not with higher product quality. Our results shed light on the subtle interplay between formal and relational contracting. They have important implications for practice, with respect to designing optimal governance structures in partnered R&D projects.

    • March 2015
    • Journal of Operations Management

    Collaboration in Multi-Partner R&D Projects: The Impact of Partnering Scale and Scope

    By: Mishra, Anant, Aravind Chandrasekaran, and Alan MacCormack

    Abstract—How can firms design collaboration structures for effective performance in R&D projects that involve multiple partners? To address this question, we examine the theoretical underpinnings of collaboration structures in multi-partner R&D projects-i.e., the scale and the scope of partnering efforts. Partnering scale captures the extent of resource interdependencies between a firm and its partners; partnering scope captures both the breadth and depth of the interdependencies between a firm and its partners. Using primary data from 147 multi-partner R&D projects, we develop and test hypotheses that examine the impact of partnering scale and scope decisions on partnering performance. Results indicate that partnering scale has a curvilinear relationship with partnering performance. That is, intermediate levels of partnering scale are associated with higher partnering performance, compared to low or high levels of partnering scale. However, we also find that the nature of this relationship is moderated by the sub-dimensions of partnering scope. Specifically, increase in partnering breadth appears to magnify the negative effect of partnering scale on performance. In contrast, increase in partnering depth appears to overcome this negative effect, allowing firms to operate at higher levels of partnering scale. Taken together, these results highlight the importance of adopting a comprehensive approach to designing collaboration structures for multi-partner R&D projects.

    Publisher's link: http://dx.doi.org.ezp-prod1.hul.harvard.edu/10.1016/j.jom.2014.09.008

    • March 2015
    • Management Science

    Wisdom or Madness? Comparing Crowds with Expert Evaluation in Funding the Arts

    By: Mollick, Ethan, and Ramana Nanda

    Abstract—In fields as diverse as technology entrepreneurship and the arts, crowds of interested stakeholders are increasingly responsible for deciding which innovations to fund, a privilege that was previously reserved for a few experts, such as venture capitalists and grant‐making bodies. Little is known about the degree to which the crowd differs from experts in judging which ideas to fund, and, indeed, whether the crowd is even rational in making funding decisions. Drawing on a panel of national experts and comprehensive data from the largest crowdfunding site, we examine funding decisions for proposed theater projects, a category where expert and crowd preferences might be expected to differ greatly. We instead find substantial agreement between the funding decisions of crowds and experts. Where crowds and experts disagree, it is far more likely to be a case where the crowd is willing to fund projects that experts may not. Examining the outcomes of these projects, we find no quantitative or qualitative differences between projects funded by the crowd alone, and those that were selected by both the crowd and experts. Our findings suggest that crowdfunding can play an important role in complementing expert decisions, particularly in sectors where the crowds are end users, by allowing projects the option to receive multiple evaluations and thereby lowering the incidence of "false negatives."

    Publisher's link: http://www.hbs.edu/faculty/Publication%20Files/14-116%20(3)_5dfe7025-e2cc-4e07-bfb4-f4204ae3d52c.pdf

     

    Working Papers

    The Cooperative Solution of Stochastic Games

    By: Kohlberg, Elon, and Abraham Neyman

    Abstract—Building on the work of Nash, Harsanyi, and Shapley, we define a cooperative solution for strategic games that takes account of both the competitive and the cooperative aspects of such games. We prove existence in the general non-transferable utility (NTU) case and uniqueness in the transferable utility (TU) case. Our main result is an extension of the definition and the existence and uniqueness theorems to stochastic games-discounted or undiscounted.

    Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=15-071.pdf

    Monitoring Global Supply Chains

    By: Short, Jodi L., Michael W. Toffel, and Andrea R. Hugill

    Abstract—Outsourcing firms seeking to avoid reputational spillovers that can arise from dangerous, illegal, and unethical behavior at supply chain factories increasingly rely on private social auditors to provide strategic information about the conduct of their suppliers. But little is known about what influences auditors' ability to identify and report poor supplier conduct. We find that individual supply chain auditors' monitoring practices are shaped by social factors including their experience, gender, and professional training; their ongoing relationships with suppliers; and the gender diversity of their audit teams. Providing the first comprehensive and systematic findings on supply chain monitoring, our study identifies previously overlooked transaction costs and suggests strategies to develop governance structures to mitigate reputational spillover risks by reducing information asymmetries between themselves and their suppliers.

    Download working paper: http://ssrn.com/abstract=2343802

     

    Cases & Course Materials

    • Harvard Business School Case 815-087

    Dubai's Dhamani: Becoming a Global Jeweler?

    Dhamani started as a dealer of loose gemstones in 1969 in Jaipur, India. By the 2000s, it was headquartered in Dubai, United Arab Emirates, and had expanded into diamonds and retail. The family business was now in its second generation of leadership and aimed to become a top global jewelry brand within the next 10 years. The family had been successful throughout its various inflection points in the past-had it positioned itself well to soon begin competing with the global, high-end jewelry houses such as Cartier and Bulgari?

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/815087-PDF-ENG

    • Harvard Business School Case 215-026

    Longbow Capital Partners

    Longbow Capital Partners is a value-oriented long/short hedge fund focused on stocks in the energy sector. In January 2011, Longbow had invested in NiSource, a Fortune 500 company that owns a diverse portfolio of regulated energy businesses. In late 2014, Longbow was deciding whether or not to maintain its position in NiSource. To make this decision, students must perform a discounted dividend analysis to determine the fundamental value of NiSource's stock. Students are also asked to perform a sum-of-the-parts analysis to assess the implications of NiSource's recent proposal to pursue a tax-advantaged spin-off its pipeline business.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/215026-PDF-ENG

    • Harvard Business School Case 815-001

    Growth Hacking at Bazaart (A)

    The four founding members of Bazaart-a young Israeli company whose sole product was its eponymous mobile application (app) that allowed users to create collages from photographs and other images-face an important strategic decision in June 2014. Since its founding roughly two years earlier, the company had raised very little money from outside investors. Gili Golander, one of the founders and Bazaart's chief marketing officer, utilized a number of "growth hacking" techniques to generate downloads and build awareness at minimal cost. These techniques had proven successful and helped the firm reach 1 million downloads by June 2014. However, the four founders debated whether to stay focused on growing Bazaart's user base and worry about driving revenue later, or try and monetize the app (by introducing in-app purchases, native advertising, or moving to a subscription model) and bring in some much needed revenue. Would growth hacking alone be enough to grow the company, or should it utilize (and pay for) more traditional marketing? What approach would make the company more attractive to investors?

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/815001-PDF-ENG

    • Harvard Business School Case 315-011

    Integrated Reporting at Aegon

    In 2011, Aegon adopted integrated reporting-a corporate reporting approach that sought to present company performance in a holistic light by considering medium- to long-term issues, stakeholder opinions, and the relationship between material financial and nonfinancial data. By 2013, Aegon had reduced the page count of its annual corporate reporting documents, helped stakeholders gain a more thorough understanding of its strategy, and begun the transition from being a product manufacturer to a customer-centric company. Still, the company's integrated report was separate from its regulatory filing. Although work in an area where there was not much regulatory or legislative guidance assuaged the Disclosure Committee's fears of accidentally violating regulations or taking on extra liability by reporting on non-financial information that was difficult to verify by a third-party, some felt the report's status meant it had not driven some of the organizational change it could have. Could Aegon benefit from publishing its integrated report as the official regulatory document? How could Aegon create a more interactive, real-time integrated reporting website that was connected to the core of their strategy? How should Aegon Asset Management include the integration of EGS factors in its investment processes and engagement with portfolio companies? What should the next step be?

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/315011-PDF-ENG

    • Harvard Business School Case 415-043

    Susie Mulder at NIC+ZOE

    Susie Mulder must decide how to lead NIC+ZOE-the women's apparel brand she had recently joined as CEO-from its start-up phase into a disciplined growth phase. With growing revenues, a successful product line, and savvy private equity investors, NIC+ZOE seems perfectly positioned for growth, but the company is struggling to execute efficiently, and senior managers are torn about a key decision: whether to go into e-commerce or not.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/415043-PDF-ENG

    • Harvard Business School Case 615-038

    The Thermostat Industry: Transformation from Analog to Digital

    This note examines the evolution of the thermostat industry as it transitioned from analog to digital technologies. It presents an overview of key industry participants and the shift in value creation and value capture models for firms.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/615038-PDF-ENG

    • Harvard Business School Case 515-044

    Gilead: Hepatitis-C Access Strategy (B)

    While the "Gilead: Hepatitis-C Access Strategy (A)" case (HBS No. 515-025) poses questions on what the company should do with respect to hard-hit countries like Egypt and India, the (B) case provides the answer. In both cases, the company chose to pursue a proactive strategy to enable access at affordable prices.

    Purchase this case:
    https://cb.hbsp.harvard.edu/cbmp/product/515044-PDF-ENG

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