First Look

May 10, 2011

Political candidates, job interviewees, and diplomats all do it: dodge tricky questions. But do they get away with it? Continuing previous research, Todd Rogers and Michael I. Norton write up their results in, "The Artful Dodger: Answering the Wrong Question the Right Way," to be published in a forthcoming issue of "Journal of Experimental Psychology: Applied." For a sneak preview, read our interview with Rogers.

To what degree do peers shape our career choices? Looking at how MBA students might choose to become entrepreneurs, Josh Lerner and Ulrike Malmendier explore the question of whether students paired with former entrepreneurs at HBS are more likely to follow that same path? Read, "With a Little Help from My (Random) Friends: Success and Failure in Post-Business School Entrepreneurship." Their report: "We find that the presence of entrepreneurial peers strongly predicts subsequent entrepreneurship rates of students without an entrepreneurial background, but in a more complex way than the literature has previously suggested."

In a new case, Mukti Khaire, Elena Corsi, and Elisa Farri look at a pivotal decision facing the co-founder of an Italian bike manufacturer known for its quality craftsmanship. To reduce costs, should the company risk its brand by outsourcing production? Read the case, ABICI.

— Sean Silverthorne


Nonsimultaneous Chains and Dominos in Kidney Paired Donation—Revisited


Since 2008 kidney exchange in America has grown in part from the incorporation of non-directed donors in transplant chains rather than simple exchanges. It is controversial whether these chains should be performed simultaneously ("domino paired donation," DPD) or nonsimultaneously ("nonsimultaneous extended altruistic donor chains," NEAD). NEAD chains create "bridge donors" whose incompatible recipients receive kidneys before the bridge donor donates, and so risk reneging by bridge donors, but offer the opportunity to create more transplants by overcoming logistical barriers inherent in simultaneous chains. Gentry et al. simulated whether DPD or NEAD chains would produce more transplants when chain segment length was limited to three transplants and reported that DPD performed at least as well as NEAD chains. As this contrasts with the experience of several groups involved in kidney paired donation, we performed simulations that allowed for longer chain segments and used actual patient data from the Alliance for Paired Donation. When chain segments of 4-6 are allowed in the simulations, NEAD chains produce more transplants than DPD. Our simulations showed not only more transplants as chain length increased, but also that NEAD chains produced more transplants for highly sensitized and blood type O recipients.

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Female Empowerment: Impact of a Commitment Savings Product in the Philippines


Female "empowerment" has increasingly become a policy goal, both as an end to itself and as a means to achieving other development goals. Microfinance in particular has often been argued, but not without controversy, to be a tool for empowering women. Here, using a randomized controlled trial, we examine whether access to and marketing of an individually held commitment savings product lead to an increase in female decision-making power within the household. We find positive impacts, particularly for women who have below median decision-making power in the baseline, and we find this leads to a shift toward female-oriented durable goods purchased in the household.

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The Artful Dodger: Answering the Wrong Question the Right Way


What happens when speakers try to "dodge" a question they would rather not answer by answering a different question? In 4 studies, we show that listeners can fail to detect dodges when speakers answer similar—but objectively incorrect—questions (the "artful dodge"), a detection failure that goes hand in hand with a failure to rate dodgers more negatively. We propose that dodges go undetected because listeners' attention is not usually directed toward a goal of dodge detection (i.e., Is this person answering the question?) but rather toward a goal of social evaluation (i.e., Do I like this person?). Listeners were not blind to all dodge attempts, however. Dodge detection increased when listeners' attention was diverted from social goals toward determining the relevance of the speaker's answers (Study 1), when speakers answered a question egregiously dissimilar to the one asked (Study 2), and when listeners' attention was directed to the question asked by keeping it visible during speakers' answers (Study 4). We also examined the interpersonal consequences of dodge attempts: When listeners were guided to detect dodges, they rated speakers more negatively (Study 2), and listeners rated speakers who answered a similar question in a fluent manner more positively than speakers who answered the actual question but disfluently (Study 3). These results add to the literatures on both Gricean conversational norms and goal-directed attention. We discuss the practical implications of our findings in the contexts of interpersonal communication and public debates.

Read the paper: norton.pdf


Working Papers

Mandatory IFRS Adoption and Financial Statement Comparability


This study examines the effect of mandatory International Financial Reporting Standards (IFRS) adoption on financial statement comparability. To isolate the effects of changes in comparability, we examine changes to information asymmetry for firms domiciled in the U.K. Domestic standards in the U.K. that preceded IFRS adoption are considered very similar to IFRS (Bae et al., 2008); accordingly, we use the U.K. as a setting to isolate changes to the information environment relating to IFRS adoption that is more likely to reflect changes in comparability versus information quality. If IFRS adoption improves financial statement comparability across firms, we predict this should reduce private information benefits. Empirical results confirm these predictions. Specifically, abnormal returns to two proxies for private information (insider purchases and analyst recommendation upgrades) are reduced following IFRS adoption. Similar results are obtained for subsamples that further isolate the reduction in private information as attributable to increases in comparability: firms having low amounts of reconciling items between U.K. GAAP and IFRS, and firms having ex ante high quality information environments. Together, the results are consistent with mandatory IFRS adoption leading to enhanced comparability.

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When Smaller Menus Are Better: Variability in Menu-Setting Ability


The economics literature on choice focuses on individuals' decisions when faced with a given menu. However, the menu itself is often the result of pre-selection by a menu setter. We develop a model to study the relation between the ability of the menu setter and the size and quality of the menu. We show that when the cost of increasing the size of the menu is sufficiently small, a lower-ability menu setter optimally offers more items in the menu than a higher-ability menu setter. Nevertheless, the menu optimally offered by a higher-ability menu setter remains superior to the menu optimally offered by a lower-ability menu setter. This results in a negative relation between menu size and menu quality, i.e., a smaller menu is better than a larger menu. We illustrate this result empirically in the context of 401(k) plans, where we show a negative relation between the number of investment choices in a 401(k) plan and the quality of the optimal portfolio achievable given those investment choices.

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With a Little Help from My (Random) Friends: Success and Failure in Post-Business School Entrepreneurship


To what extent do peers affect our occupational choices? This question has been of particular interest in the context of entrepreneurship and policies to create a favorable environment for entry. Such influences, however, are hard to identify empirically. We exploit the assignment of students into business school sections that have varying numbers of classmates with prior entrepreneurial experience. We find that the presence of entrepreneurial peers strongly predicts subsequent entrepreneurship rates of students without an entrepreneurial background, but in a more complex way than the literature has previously suggested: A higher share of entrepreneurial peers leads to lower rather than higher subsequent rates of entrepreneurship. However, the decrease in entrepreneurship is entirely driven by a significant reduction in unsuccessful entrepreneurial ventures. The effect on the rate of successful post-MBA entrepreneurs, instead, is insignificantly positive. In addition, sections with few prior entrepreneurs have a considerably higher variance in their rates of unsuccessful entrepreneurs. The results are consistent with intra-section learning, where the close ties between section-mates lead to insights about the merits of business plans.

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A Dynamic Perspective on Ambidexterity: Structural Differentiation and Boundary Activities


This paper explores the shifting nature of differentiation and integration in organizations attempting to explore and exploit. In a longitudinal study of six new business initiatives, we find that firms engage in a dynamic process of managing contradictory boundary activities. Boundaries between differentiated units are reinforced to enable exploitation and exploration, while corporate boundary spanners integrate these processes. The locus of integration shifts from the corporate team to lower organizational levels when the new business initiative reaches economic and cognitive legitimacy. We use these insights to revise the organizational ambidexterity concept, considering the underexplored roles of time, paradox, and locus.

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Embracing Paradox


Trying to resolve the paradox between innovation and the core business only weakens the CEO and dooms the company. Exceptional leaders embrace tensions associated with exploiting prior strategies even as they explore into the future.

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Cases & Course Materials

Leaders Who Make a Difference: Sam Palmisano's Smarter IBM: Day 2

Joseph L. Bower and Sonja Ellingson Hout
Harvard Business School Supplement 311-031

Sam Palmisano became CEO of IBM in 2002. He dramatically energized the organization through portfolio changes and a values driven approach to managing the company. The "Day 1" case describes the strategic and organizational changes that transformed the company. The Day 2 case focuses on Sam Palmisano as a strategist, organization builder, and driver of action. The case should be used together with video that shows Palmisano commenting on the work that was accomplished.

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Steven Carpenter at Cake Financial

Thomas R. Eisenmann and Alison Berkley Wagonfeld
Harvard Business School Case 811-041

After investing $9 million of venture capital, Cake Financial had failed to reach critical mass. In early 2010 Cake's assets were sold and the company was dissolved. Founded in 2006, the San Francisco-based Internet company allowed users to monitor their investments and communicate with each other about their portfolio strategies. The case recounts key decisions made by founder and CEO Steve Carpenter, including several "pivots"—shifts in business model, position, and strategy—made by Cake's team in response to market feedback.

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Vereinigung Hamburger Schiffsmakler und Schiffsagenten e.V. (VHSS): Valuing Ships

Benjamin C. Esty and Albert Sheen
Harvard Business School Case 210-058

After booming for more than five years, the global shipping (maritime) industry experienced a dramatic crash in late 2008 as the global financial system froze and the global economy slid into recession. Ship charter rates (revenue) fell by as much as 90% causing prices of used ships to fall by as much as 80%. As ship prices (values?) fell, ship owners began to default on loans and new purchase contracts while banks holding loans secured by ships faced the possibility of increasing defaults (violations of loan-to-value covenants), foreclosures, and write-offs. In the midst of this crisis, VHSS, the German Shipbroker's Association, introduced a proposal to value ships using discounted cash flow analysis (to determine a long-term asset value, LTAV) rather than market prices from comparable transactions. Thomas Rehder, the chairman of VHSS, argued this approach was necessary because market prices did not reflect fundamental values in the current environment. After announcing the alternative valuation methodology in September 2009, he must convince industry participants—ship owners, appraisers, and bankers—to adopt the new valuation methodology and bank regulators and auditing firms to approve its use.

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The Cutie Catheter

Lee Fleming and Thomas D. Perry IV
Harvard Business School Case 610-046

An abstract is unavailable at this time.

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Stanley Black & Decker, Inc.

William E. Fruhan
Harvard Business School Case 211-067

This case allows instructors to explore shareholder value creation and transfer opportunities in merger and acquisition transactions. It also invites an examination of corporate governance issues surrounding CEO compensation. This case is quite brief (a total of 4 pages) so the balance between thinking time and reading set-up time for students is quite attractive.

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Mukti Khaire, Elena Corsi, and Elisa Farri
Harvard Business School Case 811-085

The co-founder of an Italian design based bicycle manufacturer evaluates if reducing costs by outsourcing would impact its brand. The company was founded in 2005 in Italy by three friends, and in its first five years it had enjoyed steady growth and built a strong reputation for producing high-quality city bicycles, appreciated for their retro look and style. Its country of origin had probably helped them exporting their products as their bicycles were 100% made in Italy, and the Made in Italy label had a reputation for high quality, craftsmanship, and creativity. Yet profit margins were relatively low as manufacturing costs were very high. Should they outsource their production? If so, to China or to Eastern Europe? Was there some other way to improve the profitability of the company?

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Angels in British Columbia

Josh Lerner, Thomas Hellman, and Ilkin Ilyaszade
Harvard Business School Case 811-100

The case study provides an overview of the angel investment practices and describes government policies towards angel and venture capital investing in British Columbia, Canada. It focuses in particular on the Equity Capital Program (BCECP), which provides tax credits to private equity investors that meet several eligibility criteria. The case study is written from the point of view of a policy maker, with a perspective on the entire ecosystem. It provides an overview of the existing structure of the tax credit program, its history, and the lessons learned to date. It discusses the current challenges faced by policy makers wanting to further improve the program.

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Continental Media Group: Business Highlights

Robert L. Simons and Kathryn Rosenberg
Harvard Business School Case 110-087

Continental Media Group has a series of business reviews struggling to achieve profitability. This case focuses on the use of management control systems to identify emerging opportunities and the formulation of new strategies. The interactive system used by top managers—the Friday Packet-—is described and illustrated in exhibits. Top managers use this system to focus organizational attention on the critical uncertainties of the business. Provides examples of how new strategies emerge from the dialogue that is generated by the interactive control system.

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GUIDESlines: Benchmark Values for the GUIDES Framework

Matthew C. Weinzierl, Jacob Kuipers, and Jonathan Schlefer
Harvard Business School Note 711-067

GUIDESlines provides benchmark values of the key economic indicators identified in the GUIDES framework for both developed countries (the OECD) and fast-growing emerging markets (the BRINCS countries).

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