First Look

May 15, 2012

Connecting Home Depot

Perhaps no organization is as attached to its brick-and-mortar roots than a store that actually sells bona fide bricks and mortar. But even Home Depot realizes the importance of a multifaceted retail strategy. In the case "Home Depot and Interconnected Retail," José B. Alvarez, Zeynep Ton, and Ryan Johnson discuss how the home improvement giant grappled with marrying multiple marketing channels.

Explaining Coordination's Role In Collaboration

In examining the aspects of successful collaboration, scholars often focus on the subject of cooperation. But coordination is just as important, according to Ranjay Gulati, Franz Wohlgezogen, and Pavel Zhelyazkov. They discuss the role of both in a forthcoming issue of The Academy of Management Annals. Read "The Two Facets of Collaboration: Cooperation and Coordination in Strategic Alliances."

Enabling Venture Funding In Brazil

In the spring of 2000, the Brazilian government's Agency for Innovation unveiled a plan to help promising high-tech entrepreneurs gain access to venture capital. Ann Leamon and Josh Lerner explore the project in a new working paper, "Creating a Venture Ecosystem in Brazil: FINEP's INOVAR Project," noting that Brazil now leads Latin America in private equity funding by a long shot.
— Carmen Nobel


The Two Facets of Collaboration: Cooperation and Coordination in Strategic Alliances


This paper unpacks two underspecified facets of collaboration: cooperation and coordination. Prior research has emphasized cooperation, and specifically the partners' commitment and alignment of interests, as the key determinant of collaborative success. Scholars have paid less attention to the critical role of coordination-the effective alignment and adjustment of the partners' actions. To redress this imbalance, we conceptually disentangle cooperation and coordination in the context of inter-organizational collaboration and examine how the two phenomena play out in the partner selection, design, and post-formation stages of an alliance's life cycle. As we demonstrate, a coordination perspective helps resolve some empirical puzzles, but it also represents a challenge to received wisdom grounded in the salience of cooperation. To stimulate future research, we discuss alternative conceptualizations of the relationship between cooperation and coordination and elaborate on their normative implications.

Audit Quality and Auditor Reputation: Evidence from Japan


We study events surrounding ChuoAoyama's failed audit of Kanebo, a large Japanese cosmetics company whose management engaged in a massive accounting fraud. ChuoAoyama was PwC's Japanese affiliate and one of Japan's largest audit firms. In May 2006, the Japanese Financial Services Agency (FSA) suspended ChuoAoyama for two months for its role in the Kanebo fraud. This unprecedented action followed a series of events that seriously damaged ChuoAoyama's reputation. We use these events to provide evidence on the importance of auditors' reputation for quality in a setting where litigation plays essentially no role. Around one quarter of ChuoAoyama's clients defected from the firm after its suspension, consistent with the importance of reputation. Larger firms and those with greater growth options were more likely to leave, also consistent with the reputation argument.

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Working Papers

Organization Design for Distributed Innovation


Systems of distributed innovation-so-called business ecosystems-have become increasingly prevalent in many industries. These entities generally encompass numerous corporations, individuals, and communities that might be individually autonomous but related through their connection with an underlying, evolving technical system. In the future, I believe the key problem for organization design will be the management of distributed innovation in such dynamic systems. Organization designers must think about how to distribute property rights, people, and activities across numerous self-governing enterprises in ways that are advantageous for the group as well as for the designer's own firm or community.

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Platform Competition under Asymmetric Information


In the context of platform competition in a two-sided market, we study how ex-ante uncertainty and ex-post asymmetric information concerning the value of a new technology affects the strategies of the platforms and the market outcome. We find that the incumbent dominates the market by setting the welfare-maximizing level of trade when the difference in the degree of asymmetric information between buyers and sellers is significant. However, if this difference is below a certain threshold, then even the incumbent platform will distort the trade downward. Since a monopoly incumbent would set the welfare-maximizing level of trade, this result indicates that platform competition may lead to a market failure: competition results in a lower level of trade and lower welfare than a monopoly. We also consider multi-homing. We find that multi-homing solves the market failure resulting from asymmetric information. However, if platforms can impose exclusive dealing, then they will do so, which results in market inefficiency.

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Creating a Venture Ecosystem in Brazil: FINEP's INOVAR Project


An abstract is unavailable at this time.

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Why Do We Redistribute So Much but Tag So Little? The Principle of Equal Sacrifice and Optimal Taxation


Tagging is a free lunch in conventional optimal tax theory because it eases the classic tradeoff between efficiency and equality. But tagging is used in only limited ways in tax policy. I propose one explanation: conventional optimal tax theory has yet to capture the diversity of normative principles with which society evaluates taxes. I generalize the conventional model to incorporate multiple normative frameworks. I then show that if the principle of equal sacrifice-a classic, comprehensive criterion of fair taxation proposed by John Stuart Mill and associated with the Libertarian normative framework-is given some weight in the social objective function, tagging generates costs that must be weighed against the benefits it generates through conventional channels. Only tags that are sufficiently predictive of ability, such as disability status, will be used. Calibrated simulations using micro data from the United States show that optimal policy may simultaneously include substantial redistribution across income-earning abilities, as in the standard model, and reject three prominently proposed tags-gender, race, and height-as in actual policy. This explanation for limited tagging also implies that optimal marginal tax rates at high incomes are lower than in standard analysis and closer to those observed in policy.

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Cases & Course Materials

Home Depot and Interconnected Retail

José B. Alvarez, Zeynep Ton, and Ryan Johnson
Harvard Business School Case 512-036

In November 2011, just days before the holiday shopping rush, the senior leadership team of The Home Depot, Inc. (Home Depot), the world's largest home improvement chain, discussed how best to navigate the new interconnected world of retail. Retailers across the board faced a rapidly changing environment with the growing acceptance of online retailing that empowered customers by providing greater price transparency and more options. Marketing channels and communication touch points continued to shift. Home Depot's leadership grappled with the challenges of operating in an interconnected world, leveraging Home Depot's brick-and-mortar success in the new environment, and continuing to build and sustain lasting emotional connections with customers.

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Killing Craigslist: Entrepreneurship in the Online Apartment Rental Market

Peter A. Coles, Joshua Gans, and Wei-Yuan Yu
Harvard Business School Case 912-009

Jon Pastor and Lawrence Zhou were inspired by the same problem: the Internet was surprisingly unhelpful in the hunt for an apartment. The online apartment rental market was fragmented, opaque, and wrought with misinformation. The leader in this space was the website Craigslist, which was the most highly trafficked classifieds site in the world and the tenth most visited site in the United States despite introducing almost no innovations in its 15 years of existence. Having suffered as consumers, Jon and Lawrence saw this chaotic space as fertile ground for entrepreneurship. But the routes these entrepreneurs chose to take were different. "Killing Craigslist" explores the business Jon and Lawrence built to improve the online rental experience and examines strategies to attract users and monetize their sites, all in shadow of a deeply entrenched incumbent.

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Tequila Mobile SA

Hanna Hałaburda, Jerzy Surma, and Aldo Sesia
Harvard Business School Case 712-453

Wojciech Woziwodzki, co-founder, president, and CEO of Tequila Mobile SA, a mobile gamers developer, publisher, and service provider, had to make some important strategic decisions. Tequila Mobile SA had already decided to shift to a new "free2play" revenue model but needed to decide whether to focus on building its business in markets where penetration of smartphone devices was high and the economy was developed or in markets where the use of mobile devices was taking off but the economy was still developing. The other critical decision was whether to continue to invest in in-house game development or focus on being a platform providing tools for third-party developers. The mobile game industry had exploded in recent years with the introduction of smartphones, application (app) stores, and cell phone penetration into developing economies. It brought with it a significant increase in the number of mobile games being developed and published, and Woziwodzki wanted to differentiate Tequila Mobile SA from the growing number of players in the quickly evolving industry.

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Chrysler Fiat 2009

J. Bruce Harreld, Paul W. Marshall, and David Lane
Harvard Business School Case 811-030

In spring 2009, Chrysler entered a prepackaged bankruptcy and exited 40 days later in a deal with Fiat, the U.S. Treasury, and the UAW that kept the automaker alive. Looking forward, what was necessary for Chrysler to move beyond the life support it had received? What was possible? Looking back, how should the company's restructuring be assessed?

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Caijing Magazine (B)

Karthik Ramanna and G.A. Donovan
Harvard Business School Supplement 112-049

In late 2009, Wang Boming, publisher of Caijing Magazine, widely regarded as China's most independent newsmagazine, gathered his core team for an urgent meeting. His pioneering editor Hu Shuli, described for her fiercely independent journalism as "the most dangerous woman in China" had quit with two-thirds of Caijing's staff, allegedly over a conflict on editorial independence. Wang, known for his ability to navigate the country's carefully controlled propaganda apparatus, considered how to rebuild the magazine without its star editor.

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Henkel: Building a Winning Culture

Robert L. Simons and Natalie Kindred
Harvard Business School Case 112-060

This case illustrates a CEO-led organizational transformation driven by stretch goals, performance measurement, and accountability. When Kasper Rorsted became CEO of Henkel, a Germany-based producer of personal care, laundry, and adhesives products, in 2008, he was determined to transform a corporate culture of "good enough" into one singularly focused on winning in a competitive marketplace. Historically, Henkel was a comfortable, stable place to work. Many employees never received negative performance feedback. Seeking to overturn a pervasive attitude of complacency, Rorsted implemented a multi-step change initiative aimed at building a "winning culture." First, in November 2008, he announced a set of ambitious financial targets for 2012. As financial turmoil roiled the global economy, he reaffirmed his commitment to these targets, sending a clear signal to Henkel employees and external stakeholders that excuses were no longer acceptable. Rorsted next introduced a new set of five company values-replacing the previous list of 10 values, which few employees could recite by memory-the first of which emphasized a focus on customers. He also instituted a new, simplified performance management system, which rated managers' performance and advancement potential on a four-point scale. The system also included a forced ranking requirement, mandating that a defined percentage of employees (in each business unit and company-wide) be ranked as top, strong, moderate, or low performers. These ratings significantly impacted managers' bonus compensation. In late 2011-the time in which the case takes place-Henkel is well on its way to achieving its 2012 targets. Having shed nearly half its top management team, along with numerous product sites and brands, Henkel appears to be a leaner, more competitive, "winning" organization.

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