First Look

Publications

Strength in Numbers: The Political Power of Weak Interests

Abstract

This book investigates the sources of interest group influence has on public policy. Trumbull argues that diffuse groups like consumers are more influential, and industry less influential, than we commonly assume.

How Early Adoption Has Increased Wealth—Until Now

Abstract

Societies that are better at utilizing tools are likely to be more productive. The authors have studied when 161 countries adopted 104 technologies over the past 200 years, and they conclude that profound economic advantages-as measured by per capita income-accrue to early adopters of technology.

Read the paper: http://www.people.hbs.edu/dcomin/vision.pdf

Racial Diversity, Racial Asymmetries, and Team Learning Environment: Effects on Performance

Abstract

This paper argues that learning in cross-race interactions is critical for work teams to realize performance benefits from racial diversity but that diversity is a liability when society's negative stereotypes about racial minorities' competence inhibit such interactions. We analyze two years of data from 496 retail bank branches to investigate racial asymmetries in the dynamics of team learning and their impact on the link between diversity and bottom-line performance. As expected, minorities' negative assessments of their team's learning environment precipitate a negative relationship between diversity and performance, irrespective of white teammates' assessments; only when both groups view the team's learning environment as supportive-implying that the team has successfully countered the negative effects of societal stereotypes on cross-race learning-is the relationship positive. We conclude that acknowledging the impact of societal asymmetries between racial groups, especially in regard to learning, can reorient research about the link between identity-group-based diversity and performance.

How to Make Finance Work

Abstract

Once a sleepy old boys' club, the U.S. financial sector is now a dynamic and growing business that attracts the best and the brightest. It is tempting to declare the industry a roaring success. But its purpose is to serve the needs of U.S. households and firms, and by this standard its performance has been mixed. The sector's growth has been beneficial for U.S. corporations, which enjoy ready access to the deepest capital markets in the world. Venture capital, for example, and the public equity markets that support it, has channeled money to innovative ideas that have transformed industries and generated new ones. The rest of the economy, however, has not been well served by the financial sector's boom. First, the shift from deposit-based banking to a market-based "shadow banking" system, without adequate regulatory adjustments, has left the financial system vulnerable to crisis. Second, trillions of dollars have been steered into residential real estate and away from more productive investments. Third, the cost of professional investment management is too high, which drains talent from other industries. The financial sector could promote the health and competitiveness of the U.S. economy by increasing capital and liquidity requirements, reorienting the discussion around housing finance reform from keeping mortgage credit cheap to ensuring financial stability, and instituting measures that compel asset managers to compete on the true value of the services they provide.

Read the article: http://hbr.org/2012/03/how-to-make-finance-work/ar/1

Managing Political Risk in Global Business: Beiersdorf 1914-1990

Abstract

This article is concerned with business strategies of political risk management during the twentieth century. It focuses especially on Beiersdorf, a pharmaceutical and skin care company in Germany. During World War I, the expropriation of its brands and trademarks revealed its vulnerability to political risk. Following the advent of the Nazi regime in 1933, the largely Jewish owned and managed company faced a uniquely challenging combination of home and host country political risk. This article reviews the company's responses to these adverse circumstances, challenging the prevailing literature that interprets so-called "cloaking" activities as one element of businesses' cooperation with the Nazis. It also departs from previous literature in assessing the outcomes of the company's strategies after 1945. It examines the challenges and costs faced by the company in recovering the ownership of its brands. While the management of distance became much easier over the course of the twentieth century because of communications improvements, this article shows that the challenges of managing governments and political risk grew sharply.

Read the paper: http://www.people.hbs.edu/gjones/papers/Jones Lubinski Managing Political Risk.pdf

Enriching the Ecosystem

Abstract

To remain a leader in innovation, the United States needs the support of foundational institutions that help seed, grow, and renew enterprises. Historically, these institutions-such as universities, venture creators, labor markets, and job-training programs-have tended to operate in silos. But they are far more effective when they're networked. By collaborating to bridge the gaps between them, business, academic, and policy leaders can help generate more ideas, start-ups, company growth, global competitors, and prosperity. In this article, I outline an agenda for strengthening the links between key institutions. Leaders, I argue, should focus on four goals: 1) linking knowledge creation to venture creation to speed the conversion of ideas into market-ready enterprises; 2) linking small and large enterprises to promote the growth of younger companies and revitalize large corporations through partnerships with innovative SMEs; 3) improving the match between education and employment opportunities, through apprenticeship programs and other education-industry links; and 4) linking leaders across sectors to develop regional strategies and produce scalable models. In all four of these areas, promising models have already begun to emerge. By highlighting the most successful institutions and what can be learned from them, I show how America can create a richer, more competitive business ecosystem.

Read the article: http://hbr.org/2012/03/enriching-the-ecosystem/ar/1

Reviving Entrepreneurship

Abstract

New enterprises don't exist in a vacuum: They rise or fall depending on myriad contextual factors, all of them interrelated, and all of them affected by government policy. U.S. lawmakers must carefully consider the effects of interventions in at least 12 areas, ranging from capital markets to tax treatment to intellectual property to health care. Their decisions could shore up-or further weaken-what has long been America's greatest economic asset.

Read the article: http://hbr.org/2012/03/reviving-entrepreneurship/ar/1

Fixing What's Wrong with U.S. Politics

Abstract

In America today there's a growing sense that the political system is broken and that its ineffectiveness is a major threat to U.S. competitiveness. Why do so many think the political system is not working? Research shows that in Congress, Republicans and Democrats are more polarized than ever. They seem pulled apart by two starkly different conceptions of government: one viewing the government as inefficient, invasive, and easily corrupted, and another seeing it as a vehicle for solving people's problems. Yet the ideological divide may not be the true source of the breakdown. A look at U.S. history shows it's not new. Moreover, sharp ideological battles have often proved highly productive in policy terms, delivering the best ideas from both sides. In the 1840s, for instance, state politicians who were deeply skeptical of government pushed hard for balanced budget amendments while politicians at the other end of the spectrum demanded free public schools for all. In the end many states adopted both policies-a combination that proved enormously powerful. The problem today is that too many have come to view politics as war, where victory is paramount and "compromise" is a dirty word. This take-no-prisoners approach, which came into sharp relief during the debt-ceiling debate, threatens to cripple the best-of-both dynamic. Revitalizing America's culture of democracy-where the health of the nation comes first, above economic interest, party, and ideology-is essential. Business leaders must play a large role in this effort, because the implications for the economy are so great.

Read the article: http://hbr.org/2012/03/fixing-whats-wrong-with-us-politics/ar/1

Why U.S. Competitiveness Matters to All of Us

Abstract

Americans may not realize this, but the world wants the United States to be competitive. For more than a century, global observers have considered the U.S. economy to be an exemplar and America a country to envy and imitate. Unfortunately, America's reign as the global ideal seems to be waning.

Read the article: http://hbr.org/2012/03/why-us-competitiveness-matters-to-all-of-us/ar/1

Does America Really Need Manufacturing?

Abstract

Too many U.S. companies base decisions about where to locate production largely on narrow financial criteria. They don't consider whether keeping manufacturing at home makes more sense strategically or take into account the impact it might have on their ability to innovate. The result has been an exodus of manufacturing from America, which has weakened the capabilities that domestic firms need to keep inventing high-quality, cost-competitive products. One problem is that it's hard to tell when moving production far from R&D will do damage. To make that determination, we say that executives need to examine two things. The first is modularity, or the degree to which product design can be separated from manufacturing. When modularity is low, product designs can't be clearly specified and design choices affect manufacturing processes in subtle, difficult-to-predict ways (and vice versa). The second is the maturity of the manufacturing process. Immature processes are ripe for innovation, but over time opportunities for improvement become incremental. Viewed through the modularity-maturity lens, relationships between manufacturing and innovation fall into four quadrants: pure product innovation, pure process innovation, process-embedded innovation, and process-driven innovation. In the first two quadrants, locating design near production isn't critical, but separating the two functions is risky in the third and fourth quadrants. This framework will help business leaders make better sourcing decisions and reinvigorate America's innovation-driven economy.

Read the article: http://hbr.org/2012/03/does-america-really-need-manufacturing/ar/1

Choosing the United States

Abstract

The U.S. is not winning its appropriate share of location decisions, even those involving the high-value-adding activities that the country has long been able to attract. In part, this is because U.S. policy makers are not addressing weaknesses in the national business environment and are doing little to fight economic distortions that disfavor location in the United States. In addition, executives are prone to leave or overlook U.S. locations because they ignore many hidden costs associated with offshoring and do not consider how to enhance the economic potential of U.S. locations. Although both government and business must urgently address some unnecessary weaknesses in the U.S. business environment, there are hopeful signs that sophisticated management teams are reevaluating their rush offshore and, in some instances, are moving high-end mobile activities back to the United States.

Read the article: http://hbr.org/2012/03/choosing-the-united-states/ar/1

The Looming Challenge to U.S. Competitiveness

Abstract

The United States is a competitive location to the extent that companies operating in the U.S. are able to compete successfully in the global economy while supporting high and rising living standards for the average American. By this standard, U.S. competitiveness is in grave danger. The erosion of U.S. competitiveness began well before the Great Recession. The U.S. faces competition from a widening range of nations with lower wages and improving economic strategies. But a short-term focus in many businesses and political gridlock have prevented the U.S. from taking the steps needed to meet the challenge. The U.S. retains core strengths in areas such as entrepreneurship and higher education. However, these are increasingly nullified by weaknesses in the tax code, fiscal policy, K-12 education, and other areas. To address its challenges, America needs a strategy and a consensus on direction. Government will play a crucial role, but business must lead the way.

Read the paper: http://hbr.org/2012/03/the-looming-challenge-to-us-competitiveness/ar/1

The New Science of Viral Ads

Abstract

It's the holy grail of digital marketing: the viral ad, a pitch that large numbers of viewers decide to share with family and friends. Several techniques derived from new technology can help advertisers attain this. In our research, two colleagues and I use infrared eye-tracking scanners to determine exactly what people are looking at when they watch video ads. We also use a system that analyzes facial expressions to reveal what viewers are feeling. These technologies make it possible to isolate elements that cause people to stop watching and to find ones that keep them engaged. In addition, they make it possible to determine what kinds of ads are most likely to be shared and what types of people are most likely to share them. Here are five big problems online advertisers face, along with solutions that have emerged from our research.

Book: http://hbr.org/2012/03/the-new-science-of-viral-ads/ar/1

To Zap or Not to Zap: How to Insert the Brand in TV Commercials to Minimize Avoidance

Abstract

Huge amounts of money are spent on TV advertising. In an environment of rising per-viewer rates for advertisers and increased skipping past ads by consumers, it is necessary for advertising managers to understand the determinants of commercial avoidance. In order to optimize brand exposure they need information on how to best retain consumers' attention from moment-to-moment during television advertising. This large-scale eye tracking study shows that the decision to zap or not to zap depends on how the brand is presented within the commercial. First, the ability of a commercial to concentrate consumers' visual attention reduced avoidance significantly. Second, the likelihood that viewers will zap can be decreased with a "pulsing strategy" in which brand images are shown more frequently for a shorter period of time within the commercial instead of longer at the beginning or end.

Credit Access and Social Welfare: The Rise of Consumer Lending in the United States and France

Abstract

Research into the causes of the 2008 financial crisis has drawn attention to a link between growing income inequality in the United States and high household indebtedness. Most accounts trace the U.S. idea of credit-as-welfare to the period of wage stagnation and welfare retrenchment that began in the early 1970s. Using France as a comparison case, I argue that the link between credit and welfare was not unique to the United States. Indeed, U.S. charitable lending institutions that emerged at the beginning of the twentieth century were modeled in part on older French financial institutions. Three historical factors drove U.S. lenders and policymakers to push for expanded credit access for the working class. First, welfare reformers in the interwar period embraced private credit as an alternative to an expansive welfare state. Second, U.S. organized labor in the wake of World War II embraced credit access as a means to sustain industrial employment and finance strike actions. Third, commercial banks in the 1950s began offering revolving credit accounts as a means to attract new depositors at a time when banking regulation restricted the interest they could offer on deposits.

Read the paper: http://pas.sagepub.com/content/40/1/9.full.pdf+html

Macroeconomic Policy and U.S. Competitiveness

Abstract

The United States is on a glide path to fiscal disaster, with experts projecting that the federal government will take in far less money than it spends-indefinitely. Our current fiscal policy is eroding competitiveness in several ways, and business conditions in the U.S. will deteriorate if there's no change in direction. The authors examine how fiscal policy relates to the three drivers of productivity: improving human capital, increasing physical capital (equipment or software, for example), and using these forms of capital more efficiently. Government spending for many public goods, such as education and infrastructure, contributes directly to one or more of them, whereas spending on health care and entitlements does little to enhance competitiveness directly. Taxes are needed to fund public goods, but they sometimes distort the allocation of human and physical capital. And large government deficits put upward pressure on the cost of borrowing for companies. The authors propose a plan-they call it "20/21 by 2021"-to reduce the deficit from 3.8% of GDP (the Congressional Budget Office's most likely scenario) to just over 1%.

Read the article: http://hbr.org/2012/03/macroeconomic-policy-and-us-competitiveness/ar/1

Entry into Platform-based Markets

Abstract

This paper examines the relative importance of platform quality, indirect network effects, and consumer expectations on the success of entrants in platform-based markets. We develop a theoretical model and find that an entrant's success depends on the strength of indirect network effects and on the consumers' discount factor for future applications. We then illustrate the model's applicability by examining Xbox's entry into the video game industry. We find that Xbox had a small quality advantage over the incumbent, PlayStation 2, and the strength of indirect network effects and the consumers' discount factor, while statistically significant, fall in the region where PlayStation 2's position is unsustainable.