First Look

November 14, 2006

What motivates large companies with huge proprietary software portfolios—such as IBM and Sun—to invest substantial sums in open source software? And what kinds of projects do they invest in? The motivations behind the open source community are the subject of a new working paper called "The Business of Free Software: Enterprise Incentives, Investment, and Motivation in the Open Source Community." Also made available this week are new cases on Clearwater Seafood and Medtronic, and an MIT Sloan Management Review article by Andrew McAfee, who studies emerging communications tools like wikis in corporate environments.
— Sean Silverthorne

Working Papers

The Business of Free Software: Enterprise Incentives, Investment, and Motivation in the Open Source Community


In this paper, we examine the motivations of large information technology ("IT") vendors, to invest in open source software ("OSS"). What drives companies with large, proprietary software portfolios to invest hundreds of millions of dollars in OSS? We approach this question by grouping a sample of OSS projects into clusters and examining vendors' motivations for each cluster. We find one cluster has received almost no investment. Contributions to projects in this cluster are confined to the voluntary effort of the vendors' employees, and vendors are likely altruistically motivated. By contrast, the other cluster has received over 99 percent of vendor investments. Here, vendors are more likely economically motivated to invest in OSS projects that can serve as a complementary asset to vendors' core, proprietary businesses.

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Cases & Course Materials

Clearwater Seafoods

Harvard Business School Case 707-012

Clearwater was trying to market value-added products in a traditionally commodities based industry while facing supply uncertainties and regulatory, environmental, and foreign exchange challenges. Clearwater harvested shellfish from the Canadian Atlantic fishery and sold this in markets around the world. They prided themselves on their sustainable fishing practices, which were not the norm for the industry. Seafood buyers traditionally bought on price. Clearwater's innovations and technology investments enabled it to produce a higher quality, value-added product, but it faced the challenge of convincing buyers to pay a premium price. Their products originated from a wild resource under government regulations which limited the size of the catch by both the industry and Clearwater. In recent years, Clearwater operated in an environment with a rising Canadian currency. This reduced profitability because Clearwater's costs were in Canadian currency while its sales where largely in other currencies. The case also discusses the challenges of maintaining a sustainable fishery and uses the collapse of the cod fishing industry as an example. Clearwater was founded in 1976, it went public in 2002, and was still managed by its two founding partners in 2006.

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Cleveland Clinic

Harvard Business School Case 607-013

Cleveland Clinic is consistently ranked among the nation's most eminent hospitals, and for decades has been a leader in pioneering cardiac care. Explores the methods, processes, and personnel that the hospital has cultivated over the years in order to develop its track record of excellence. In light of this, as well as a recent foray into a new market, possibilities for expanding by building on the Clinic's platform of service delivery are investigated.

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Cluster Mobilization in Mitteldeutschland

Harvard Business School Case 707-004

As part of the privatization in Eastern Germany after the fall of the Berlin Wall, Dow Chemical made a major investment in the Halle-Leipzig region, one of the largest chemical industry sites in Europe. The executive in charge of Dow's operations in the region, Bart Groot, increasingly felt that the long-term success of Dow's investment depended on a more dynamic development of the entire regional economy. On his own initiative, in 1997, Groot launched a private sector-driven effort to enhance the economic development in central Germany, the region located around Halle-Leipzig. Bundling together 50 other firms and four cities, he founded a regional marketing effort to brand or market the area, but then shifted focus to building clusters. Examines the motivations of companies and company executives to get involved in regional competitiveness efforts and provides a platform to discuss the factors that drive the success of cluster-building efforts through cooperation across firms in a disadvantaged area.

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Medtronic Vision 2010

Harvard Business School Case 807-051

Describes the company's year-long efforts to transition from a medical device company selling products to physicians for use with patients suffering chronic end-stage disease, to a medical technology company providing life-long solutions for people with chronic diseases. With the new vision setting direction, the CEO calls for business plans to implement that vision. Enables readers to analyze the business plan and make recommendations for funding. Rewritten version of earlier supplements.

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A Note on Applying Dimensional Analysis to Understand Cost Drivers

Harvard Business School Note 706-492

Describes the basics of how to break down costs into productivity and input prices and then compare those cost drivers between competitors.

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Tanishq: Positioning to Capture the Indian Woman's Heart

Harvard Business School Case 507-025

The firm has to choose between an established brand, Tanishq, and a new skunkworks brand, GoldPlus, to go after the Indian plain gold jewelry market: Tanishq, initially targeted at a western customer, has undergone strategic retooling and has currently been repositioned to serve the "traditional yet modern" Indian woman. The brand still carries some baggage from its past. GoldPlus, on the other hand, is a new brand that is positioned to serve the plain gold wedding jewelry market. A variety of strategic, economic, organizational and brand investment reasons make the decision an important one.

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Tim Keller at Katzenbach Partners LLC (A)

Harvard Business School Case 407-037

Tracks of the first 6 months of a recent MBA grad, Tim Keller, at Katzenbach Partners, a boutique consulting firm focused on organizational change and strategy. Covers how Keller initially struggles with his assignment and ends with a question of whether or not he should attend a meeting that he was not invited to, where more senior consultants plan to implement the system dynamics tool that he was responsible for creating—on a Sunday when he had a major personal engagement.

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Tim Keller at Katzenbach Partners LLC (B)

Harvard Business School Supplement 407-038

Supplements the (A) case. The (B) case presents the final outcome of the events. Reveals how Keller is able to turn around perceptions about him and forge relationships with key decision makers. Includes reflections and lessons learned from all parties and Keller's actual 2005 year-end and self-evaluations on the project.

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Tim Keller at Katzenbach Partners LLC (C)

Harvard Business School Supplement 407-039

Supplements the (A) case. The (C) case includes Keller's actual 2006 mid-year and self-evaluations.

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Andy Grove: The Life and Times of an American


Andy Grove, the CEO of Intel during its years of explosive growth, is on the shortlist of America's most admired businesspeople, along with Steve Jobs, Warren Buffett, and Bill Gates. Brilliant, brave, and willing to defy conventional wisdom, Grove is, according to Harvard Business School professor Richard S. Tedlow, "the best model we have for leading a business in the twenty-first century." Grove gave Tedlow unprecedented access to his private papers, along with wide-ranging interviews and access to his closest friends and key business associates. Nothing was off limits, and Tedlow was free to draw his own conclusions. The result is not just a gripping life story but a fascinating analysis of how Grove attacks problems. Born in Hungary of Jewish background in 1936, Andras Istvan Grof survived the Nazis only to face the Soviet invasion of his country. He fled to America at age twenty, studied engineering, and arrived in Silicon Valley just in time for a historic opportunity. He became the third employee of Intel, working for the legendary Gordon Moore and Robert Noyce.

As talented as he was as an engineer, Grove became an even better manager, as we learn from exclusive excerpts from his secret management diaries. Tedlow shows us exactly how that penniless immigrant taught himself to lead a major corporation through some of the toughest challenges in the history of business.

This is an inspiring biography that will enthrall anyone who cares about technology or leadership.

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The Costs and Benefits of Undoing Egocentric Responsibility Assessments in Groups


Individuals working in groups often egocentrically believe they have contributed more of the total work than is logically possible. Actively considering others' contributions effectively reduces these egocentric assessments, but this research suggests that undoing egocentric biases in groups may have some unexpected costs. Four experiments demonstrate that members who contributed much to the group outcome are actually less satisfied and less interested in future collaborations after considering others' contributions compared with those who contributed little. This was especially true in cooperative groups. Egocentric biases in responsibility allocation can create conflict, but this research suggests that undoing these biases can have some unfortunate consequences. Some members who look beyond their own perspective may not like what they see.

How to Manage Urban School Districts


One of the biggest management challenges anywhere is how to improve student performance in urban public schools in the United States. There has been no shortage of proposed solutions: Find great principals and give them power; create competitive markets with charters, vouchers, and choice; establish small schools to ensure that students receive sufficient attention—the list goes on. Although these approaches have created positive changes in individual schools, they have failed to produce a single high-performing urban school system. In this article, the authors, who are members of Harvard University's Public Education Leadership Project (PELP), explain why. One reason, they say, is that educators, researchers, and policy makers see the district office, which oversees all the schools in a district, as part of the problem rather than a crucial part of the solution—and this is a mistake. The district office plays an important role in developing strategies, identifying and spreading best practices, developing leadership capabilities at all levels, building information systems to monitor student improvement, and holding people accountable for results. The authors propose a holistic framework that district leaders can use to develop an improvement strategy and build coherent organizations to implement it. The framework is based on three beliefs. First, school systems need their own management models; they cannot simply import them from the business world. Second, "the customer" is the student; therefore, urban districts need to focus on improving teaching and learning in every classroom at every school. Third, district leaders must design their organizations so that all the components—culture, systems and structures, resources, and mechanisms for managing stakeholders and the external environment—reinforce one another and support the implementation of the strategy across schools.

When Perspective Taking Increases Taking: Reactive Egoism in Social Interaction


Group members often reason egocentrically, believing that they deserve more than their fair share of group resources. Leading people to consider other members' thoughts and perspectives can reduce these egocentric (self-centered) judgments such that people claim that it is fair for them to take less; however, the consideration of others' thoughts and perspectives actually increases egoistic (selfish) behavior such that people actually take more of available resources. A series of experiments demonstrates this pattern in competitive contexts in which considering others' perspectives activates egoistic theories of their likely behavior, leading people to counter by behaving more egoistically themselves. This reactive egoism is attenuated in cooperative contexts. Discussion focuses on the implications of reactive egoism in social interaction and on strategies for alleviating its potentially deleterious effects.

Breaking the Trade-Off Between Efficiency and Service


For manufacturers, customers are the open wallets at the end of the supply chain. But for most service businesses, they are key inputs to the production process. Customers introduce tremendous variability to that process, but they also complain about any lack of consistency and don't care about the company's profit agenda. Managing customer-introduced variability, the author argues, is a central challenge for service companies. The first step is to diagnose which type of variability is causing mischief: Customers may arrive at different times, request different kinds of service, possess different capabilities, make varying degrees of effort, and have different personal preferences. Should companies accommodate variability or reduce it? Accommodation often involves asking employees to compensate for the variations among customers—a potentially costly solution. Reduction often means offering a limited menu of options, which may drive customers away. Some companies have learned to deal with customer-introduced variability without damaging either their operating environments or customers' service experiences. Starbucks, for example, handles capability variability among its customers by teaching them the correct ordering protocol. Dell deals with arrival and request variability in its high-end server business by outsourcing customer service while staying in close touch with customers to discuss their needs and assess their experiences with third-party providers. The effective management of variability often requires a company to influence customers' behavior. Managers attempting that kind of intervention can follow a three-step process: diagnosing the behavioral problem, designing an operating role for customers that creates new value for both parties, and testing and refining approaches for influencing behavior.

Innovation: The Classic Traps


Never a fad, but always in or out of fashion, innovation gets rediscovered as a growth enabler every half dozen years. Too often, grand declarations about innovation are followed by mediocre execution that produces anemic results, and innovation groups are quietly disbanded in cost-cutting drives. Each managerial generation embarks on the same enthusiastic quest for the next new thing. And each generation faces the same vexing challenges—most stemming from the tensions between protecting existing revenue streams critical to current success and supporting new concepts that may be crucial to future success. In this article, Harvard Business School professor Rosabeth Moss Kanter reflects on four major waves of innovation enthusiasm she's observed over the past 25 years. She describes the classic mistakes companies make in innovation strategy, process, structure, and skills assessment, illustrating her points with a plethora of real-world examples—including AT&T Worldnet, Timberland, and Ocean Spray. A typical strategic blunder is when managers set their hurdles too high or limit the scope of their innovation efforts. Quaker Oats, for instance, was so busy in the 1990s making minor tweaks to its product formulas that it missed larger opportunities in distribution. A common process mistake is when managers strangle innovation efforts with the same rigid planning, budgeting, and reviewing approaches they use in their existing businesses—thereby discouraging people from adapting as circumstances warrant. Companies must be careful how they structure fledgling entities alongside existing ones, Kanter says, to avoid a clash of cultures and agendas—which Arrow Electronics experienced in its attempts to create an online venture. Finally, companies commonly undervalue and underinvest in the human side of innovation—for instance, promoting individuals out of innovation teams long before their efforts can pay off. Kanter offers practical advice for avoiding these traps.

Enterprise 2.0: The Dawn of Emergent Collaboration


There is a new wave of business communication tools including blogs, wikis and group messaging software—which the author has dubbed, collectively, Enterprise 2.0—that allow for more spontaneous, knowledge-based collaboration. These new tools, the author contends, may well supplant other communication and knowledge management systems with their superior ability to capture tacit knowledge, best practices and relevant experiences from throughout a company and make them readily available to more users. This article offers a paradigm that highlights the salient characteristics of these new technologies, which the author refers to as SLATES (search, links, authoring, tags, extensions, signals). The resulting organizational communication patterns can lead to highly productive and highly collaborative environments by making both the practices of knowledge work and its outputs more visible. Drawing on case studies and survey data, the article offers managers a set of ground rules for implementing the new technologies. First, it is necessary to create a receptive culture in order to prepare the way for new practices. Second, a common platform must be created to allow for a collaboration infrastructure. Third, an informal rollout of the technologies may be preferred to a more formal procedural change. And fourth, managerial support and leadership is crucial. Even when implanted and implemented well, these new technologies will certainly bring with them new challenges. These tools may well reduce management's ability to exert unilateral control and to express some level of negativity. Whether a company's leaders really want this to happen and will be able to resist the temptation to silence dissent is an open question. Leaders will have to play a delicate role if they want Enterprise 2.0 technologies to succeed.

Mastering the Three Worlds of Information Technology


The information age has brought with it a host of new technologies—and an overabundance of choices. Managers are hard-pressed to figure out what all those innovations do, let alone which ones to adopt and how to implement them. Furthermore, many so-called advancements haven't lived up to expectations: Frustration, delays, and even outright failures tempt many executives to avoid dealing with IT altogether. But those who turn away are selling their companies short. Executives have three critical responsibilities when it comes to IT: They must help choose technologies, using an inside-out approach that keeps the true needs of the business in mind; smooth the adoption of those technologies, taking into account that they may encounter strong resistance; and encourage their exploitation by leveraging already standardized data and work flows. What's most important, though, is that they look beyond the individual IT projects they select to the broader picture of how IT is likely to affect the organization. Information technology can be classified into three types, each of which provides companies with a particular level of change. Function IT encompasses technologies—such as spreadsheet and word-processing applications—that streamline individual tasks. Network IT includes capabilities like e-mail, instant messaging, and blogs and helps people communicate with one another. Enterprise IT brings with it approaches such as customer resource management and supply chain management and lets companies re-create interactions between groups of workers or with business partners. Different types of technology bring about different types of organizational change, and managers should tailor their own roles accordingly. Categorizing IT in this manner can help leaders determine which technologies to invest in and how they can assist organizations in making the most of them.

When More Power Makes You Worse Off: Turning a Profit in the American Economy


We propose a theory which predicts that an increase in an actor's relative power reduces the actor's rewards in high mutual dependence dyads. Our argument is based on the premise that higher relative power gives the more powerful actor a greater share of surplus, but it also reduces dyadic exchange frequency, which lowers the expected magnitude of that surplus. As mutual dependence increases, fairness issues associated with power imbalances reduce exchange frequency and expected surplus at an increasingly higher rate. Thus, at a certain level of mutual dependence, the more powerful actor obtains a greater share of a much smaller exchange surplus leading him or her to be worse off than he would be in an equal-power dyad. We support this prediction with data on profit rates in American industries from 1977 through 1992.

Facing Ambiguous Threats


On February 1, 2003, the world watched in horror as the Columbia space shuttle broke apart while reentering the earth's atmosphere, killing all seven astronauts. Some have argued that NASA's failure to respond with appropriate intensity to the so-called foam strike that led to the accident was evidence of irresponsible or incompetent management. The authors' research, however, suggests that NASA was exhibiting a natural, albeit unfortunate, pattern of behavior common in many organizations. The foam strike is a prime example of what the authors call an ambiguous threat—a signal that may or may not portend future harm. Ambiguous threats differ from threats with obvious causes—say, a fire in the building—for which the response is clear. They also differ from unmistakable threats that may lack straightforward response paths (such as the frightening oxygen-tank explosion aboard Apollo 13). However, when the warning sign is ambiguous and the threat's potential effect is unclear, managers may choose to ignore or discount the risk. Such an approach can be catastrophic. Firms that do a good job of dealing with ambiguous threats do not improvise during a crisis; rather, they apply a rigorous set of detection and response capabilities that they have developed and practiced beforehand. In this article, the authors outline how to put such capabilities in place long before a crisis strikes. First, companies need to hone their teamwork and rapid problem-solving skills through practice. Second, they must learn to recognize weak signals, amplify the threat, and encourage employees to ask disconcerting "what if" questions in a safe environment. Finally, they should explore possible responses to threats through quick, low-cost experimentation.