First Look

May 11, 2010

Can your company develop a breakthrough product like the Apple iPad or Swiffer? Sure, why not—as long as you construct an innovation system like a pyramid, writes HBS professor Rosabeth Moss Kanter in the May issue of Harvard Business Review.

As Kanter advises in her article, "Block-by-Blockbuster Innovation," start with a wide foundation: Keep it strong by focusing on incremental improvements and empowering all employees to share ideas "in a culture of creativity and change," according to Kanter. The middle of the pyramid, shielded from the hubbub of day-to-day operations, is the place to nurture and test out projects, prototypes, and ventures that might later bear fruit. The top of the pyramid, meanwhile, is for "a few major bets" to take pride of place. Based on breakthrough potential, it's up to leaders need to clearly identify, prioritize, and support initiatives.

"An innovation pyramid can be open, transparent, and dynamic. Ideas move in, up, or across the pyramid by design or through self-organizing teams," writes Kanter. "For example, virtual worlds became an IBM innovation priority and the smart electricity grid a Cisco strategy through raw ideas circulating among professionals before they emerged as business opportunities."

Also this week: several research studies and nine business cases, including "Revitalizing Dell" and "U.S. Healthcare Reform: International Perspectives."

— Martha Lagace


Block-by-Blockbuster Innovation

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Between Global and Local: The Invention of Data Privacy in the United States and France

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Lessons from the Crisis about Governing Financial Institutions

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Multinationals Make Money in the Third World

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Working Papers

Agency Costs, Mispricing, and Ownership Structure


Standard theories of corporate ownership assume that because markets are efficient, insiders ultimately bear agency costs and therefore have a strong incentive to minimize conflicts of interest with outside investors. We show that if equity is overvalued, however, mispricing offsets agency costs and can induce a controlling shareholder to list equity. Higher valuations support listings associated with greater agency costs. We test the predictions that follow from this idea on a sample of publicly listed corporate subsidiaries in Japan. When there is greater scope for expropriation by the parent firm, minority shareholders fare poorly after listing. Parent firms often repurchase subsidiaries at large discounts to valuations at the time of listing and experience positive abnormal returns when repurchases are announced.

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Cases & Course Materials

Opportunities in Business and Life after Virgin Money: Asheesh Advani

Bhaskar Chakravorti and Shirley M. Spence
Harvard Business School Case 810-072

Asheesh Advani is in an enviable position for a successful entrepreneur: he has sold his business and is trying to decide what to do with the next phase of his life. For the first two years after selling CircleLending—a pioneer in the person-to-person lending field—to Richard Branson, he stayed on as president and CEO of Virgin Money USA. Now resigned, he has decided to take a year off, in part to take a "great adventure" with his young family. In October 2009, as they prepare for their departure to India, he reflects on how to spend his time there and whether and how to pursue the several business opportunities that have already emerged. The opportunities present different role options for Advani—as a hands-on entrepreneur or as an investor.

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U.S. Healthcare Reform: International Perspectives

Arthur A. Daemmrich and Elia Pineiro
Harvard Business School Case 710-040

The national economic implications of rising healthcare costs were poorly understood, even as the United States, Germany, and the United Kingdom instituted reforms in early 2010. Presenting opportunities for cross-national policy learning, this case describes the political economy of healthcare reform. In late March 2010, a major healthcare reform act was signed into law in the United States, expanding coverage and regulating insurers. However, it was not clear that expanding coverage would resolve a longstanding dilemma of rising costs for insurance and care. As the Department of Health and Human Services implemented the new law, it drew on lessons from Germany, which had implemented changes to regulated but competitive insurance and provider markets, and the United Kingdom, which had introduced market-style initiatives while keeping insurance and delivery under the National Health Service.

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Nestlé's Milk Districts: Case Supplement

Ray A. Goldberg and Kerry Herman
Harvard Business School Supplement 906-411

Nestlé, as the largest milk company in the world, has a history of economic development, nutrition, health, and food safety in all the major countries of the world. Each milk model is tailor-made to the needs of each country's political, social, and economic priorities. Supplements the case "Nestlé's Milk District Model: Economic Development for a Value-Added Food Chain and Improved Nutrition."

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Amyris Biotechnologies: Commercializing Biofuel

Gary P. Pisano and Alison Berkley Wagonfeld
Harvard Business School Case 610-031

In 2009, Amyris Biotechnologies was building a plant in Brazil that used synthetic biology to convert sugarcane into both renewable fuels and renewable chemicals. The Amyris' marketing team was investigating the commercial interest for both types of products, while the research and development team and the operations group were building processes that could accommodate both as well. CEO John Melo hoped to have commercial product available in 2011; however, he realized that pursuing both chemicals and fuels added even more complexity to a business that was already executing multiple development steps in parallel. The case looks at the various strategic and operational decisions facing Melo as he planned the company's optimal commercialization strategy.

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Revitalizing Dell

Jan W. Rivkin
Harvard Business School Case 710-442

Dell Inc., with its vaunted Direct Model, defined success in the personal computer industry for more than a decade. Starting in the mid-2000s, however, the company fell on hard times. In 2009, Michael Dell and his management team must figure out why the Direct Model has faltered and what they can do to revitalize the company.

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Carrot or Stick? Getting Paid for Innovation at Tessera Technologies

Willy Shih
Harvard Business School Case 610-085

Tessera Technologies has been very successful developing technologies for the semiconductor and mobile device industry, and then licensing them broadly to manufacturers. In addition to licensing patents, it also supplies know-how to help manufacturers move into high-volume production. But the changing environment for patent enforcement, in particular the use of injunctions post eBay v. MercExchange, has brought new challenges to the company's licensing model. "Patent holdouts," companies who chose to litigate rather than license, created pressure from existing licensees. Further, as the company advanced one of its newest technology developments, a cooling technology for portable devices, it had to contend with markets where there were not strong property rights regimes. Would the company be able to get paid for its innovations, or was its model doomed?

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Alibaba Group

Julie M. Wulf
Harvard Business School Case 710-436

Discusses how Alibaba Group successfully managed new business ventures to become a leader in China's online marketplaces. Students follow Alibaba Group's transition from a startup to a multibusiness firm with over 15,000 employees in just over a decade. They analyze the evolving dynamics of internal competition and cooperation among Alibaba Group's subsidiaries. Students are also asked to address Alibaba Group's strategy, the role of its corporate center and how to incentivize subsidiary executives.

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Corporate Strategy at Berkshire Partners

Julie M. Wulf and Scott Waggoner
Harvard Business School Case 710-414

The managing directors of Berkshire Partners, a mid-sized private equity firm, address strategic and organizational challenges in response to turbulent market conditions, rapid firm growth, and the transition of leadership from its founding partners to the next generations. To address some of these dynamics, and to protect Berkshire's corporate advantage, the managing directors established three executive oversight committees, developed new specialized corporate functions, and incubated an internal hedge fund group. Students are given the opportunity to assess Berkshire's recent changes in corporate strategy and organizational design and to formulate recommendations going forward.

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Organization and Strategy at Millennium (A)

Julie M. Wulf and Scott Waggoner
Harvard Business School Case 710-415

This case examines Millennium's strategic and organizational responses to the rapid evolution of the biopharmaceutical industry. In the early 2000s, as Millennium's competitive advantage in early-stage research slipped away and its losses mounted, founder and CEO Mark Levin moved the firm downstream away from research and towards drug development and commercialization, while narrowing horizontal breadth from over a dozen therapeutic classes to just three. In 2005, Levin hired Deborah Dunsire from Novartis as CEO to lead Millennium's continuing transformation. Students are asked to put themselves in the shoes of incoming CEO Dunsire and to provide organizational recommendations to execute the new strategy.

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