First Look

October 21, 2008

Why are some places more entrepreneurial than others? The answer is not necessarily found in demographics or a particular "culture" of entrepreneurship. Rather, according to new research, what matters more could be local costs and advantages such as the proximity of other industries that seek the same types of employees. These findings appear true for all sizes of start-ups, write HBS professor William R. Kerr and coauthor Edward L. Glaeser in "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?" [PDF] "[P]eople and their human capital are probably the crucial ingredient for most new entrepreneurs," they conclude. New cases this week look at the selection strategy for the 20-month training program of the Israeli Special Forces; new directions for the professional networking service LinkedIn; and challenges facing a heretofore successful serial entrepreneur.
— Martha Lagace

Working Papers

Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in Zambia (revised)


The controversy over whether and how much to charge for health products in the developing world rests, in part, on whether higher prices can increase use, either by targeting distribution to high-use households (a screening effect), or by stimulating use psychologically through a sunk-cost effect. We develop a methodology for separating these two effects. We implement the methodology in a field experiment in Zambia using door-to-door marketing of a home water purification solution. We find that higher prices screen out those who use the product less. By contrast, we find no consistent evidence of sunk-cost effects.

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Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?


Why are some places more entrepreneurial than others? We use Census Bureau data to study local determinants of manufacturing startups across cities and industries. Demographics have limited explanatory power. Overall levels of local customers and suppliers are only modestly important, but new entrants seem particularly drawn to areas with many smaller suppliers, as suggested by Chinitz (1961). Abundant workers in relevant occupations also strongly predict entry. These forces plus city and industry fixed effects explain between sixty and eighty percent of manufacturing entry. We use spatial distributions of natural cost advantages to address partially endogeneity concerns.

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The Sciences of Design: Observations on an Emerging Field


The boundaries and contours of design sciences continue to undergo definition and refinement. In many ways, the sciences of design defy disciplinary characterization. They demand multiple epistemologies, theoretical orientations (e.g., construction, analysis, or intervention), and value considerations. As our understanding of this emerging field of study grows, we become aware that the sciences of design require a systemic perspective that spans disciplinary boundaries. The Doctoral Consortium at the Design Science Research Conference in Information Sciences and Technology (DESRIST) was an important milepost in their evolution. It provided a forum where students and leading researchers in the design sciences challenged one another to tackle topics and concerns that are similar across different disciplines. This paper reports on the consortium outcomes and insights from mentors who took part in it. We develop a set of observations to guide the evolution of the sciences of design. It is our intent that the observations will be beneficial, not only for IS researchers, but also for colleagues in allied disciplines who are already contributing to shaping the sciences of design.

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Social Structure Shapes Cultural Stereotypes and Emotions: A Causal Test of the Stereotype Content Model


The stereotype content model (SCM) posits that social structure predicts specific cultural stereotypes and associated emotional prejudices (Fiske et al., 2002). No prior evidence at a societal level has manipulated both structural predictors and measured both stereotypes and prejudices. In the present study, participants (n = 120) responded to an immigration scenario depicting a high- or low-status group, competitive or not competitive, and rated their likely stereotype (on warmth and competence) and elicited emotional prejudices (admiration, contempt, envy, and pity). Seven of eight specific predictions are fully confirmed, supporting the SCM's predicted causality for social structural effects on cultural stereotypes and emotional prejudices.


Cases & Course Materials

BMW's Project Switch (A): Importers vs. National Sales Companies

Harvard Business School Case 509-023

BMW is faced with potential channel conflicts across several EU country markets. The case highlights BMW's approach to redesigning its channel in Greece. The case provides details on both headquarter and country head perspective on BMW's channel strategy.

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Chi Mei Optoelectronics

Harvard Business School Case 608-123

Chi Mei is a Taiwanese industrial group that makes a major diversification into the technology intensive TFT-LCD flat panel display industry. Because the diversification is far away from its core competence in petrochemicals, it is an opportunity to examine how the firm was able to become a global leader in the relatively short span of ten years. Such organic diversifications are relatively unusual by Western standards, especially into technologies and markets that have relatively high entry barriers and where there is no deep-rooted national technological or scientific foundation. As such Chi Mei is an interesting vehicle to examine the rise of a major Asian industrial cluster with global scope which has no participants or competitors in the West. The case can also be used to expose students to the global supply chain for key information technology components. Taiwan and Korea are today the major world centers for the manufacture of semiconductors (in particular DRAMs and FLASH memory) and flat panel displays. Taiwan is also the center for notebook computer manufacturing, and Taiwanese companies, through their China-based manufacturing and assembly operations, drive 60% of the IT exports from China. Yet few students even know the identity of these major global players. Taiwan- and Korea-based TFT-LCD flat panels are the critical components in notebook computers, computer monitors, and flat panel televisions from essentially all well known global brands.

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Dogus Group: Weighing Partners for Garanti Bank

Harvard Business School Case 709-401

In August 2005, the leadership of Turkey's Dogus Group considered opportunities for its flagship enterprise, Garanti Bank, to partner with a foreign financial institution. The case describes the Turkish banking industry and Garanti Bank's position within it, and asks students to consider whether partnership makes sense for Garanti and, if so, which bidder it should select.

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Exercise on Estimation

Harvard Business School Exercise 509-022

This exercise is meant to assess students' level of confidence around everyday business and general knowledge questions, for the purpose of identifying where they are overconfident and underconfident.

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Frank Addante, Serial Entrepreneur

Harvard Business School Case 809-046

Frank Addante is a 28-year-old serial entrepreneur who is in the process of building his fifth venture. Of his first four ventures, two were sold, one went public, and in the last he decided to close the venture and return unused capital to his investors. With the passing of each venture, he has learned about forming founding teams, splitting equity with his co-founders, hiring executives to work for him, and when to take outside funding. Now, he's facing pressure from investors who aren't happy with how he is building his current team and are questioning whether he should remain CEO.

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Gordon Williams: Clinical Research at Brigham and Women's Hospital

Harvard Business School Case 608-168

Clinical research is a critical element of biomedical research and development. This case describes the challenges of clinical research and its role in bringing breakthroughs to patients. Dr. Williams leads through his own research and special programs to train clinical investigators.

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HealthAllies (A)

Harvard Business School Case 302-019

This case describes a "do good and do well" firm that enables individuals to buy health care services at discounted prices. It delineates the characteristics of the uninsured and others who are the primary targets for the firm. "HealthAllies (B)" provides information about subsequent events.

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Iceland (A)

Harvard Business School Case 709-011

In May of 2008, a team of sovereign debt analysts at Moody's had to decide whether to downgrade the country's sovereign long-term debt from Aaa to Aa1 or lower. Investor sentiment toward Iceland had changed radically in March, and the Moody's team was fearful that the situation could spiral out of control. The Moody's team knew that carry traders increased Iceland's vulnerability to a confidence crisis because they were quick to liquidate their holdings at the first sign of distress. The plunge in the Icelandic Krona since the beginning of 2008 also forced the Icelandic people to confront a decision: would joining the European Union (EU) protect Iceland from capricious swings in investor sentiment? What, if anything, should Iceland do to avoid a future crisis?

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If We Blew It Up, Then We Could....

Harvard Business School Exercise 309-042

By setting up a thought experiment, this exercise challenges students to examine their own assumptions about the meaning of the word "public" in public education, as well as to understand competing assumptions held by others.

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Israeli Special Forces: Selection Strategy

Harvard Business School Case 409-041

Ron Guntz, commander of recruiting for Israel's Special Forces, had been instructed by his superiors to evaluate the process by which he selected soldiers for a 20-month-long training program. Was the Army conducting this process in an ideal manner? The case examines the Special Forces training in light of the types of missions soldiers are expected to execute and asks students to consider whether the Special Forces recruitment and training process identifies the best possible candidates for future Special Forces service.

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Kevin Sharer at Amgen: Sustaining the High-Growth Company (B)

Harvard Business School Supplement 409-037

Kevin Sharer, CEO of Amgen, is assessing the challenges he has faced as a major product came under regulatory scrutiny.

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LinkedIn Corp., 2008

Harvard Business School Case 709-426

In June 2008, the online professional networking service LinkedIn became a $1 billion company. But CEO Dan Nye understood that LinkedIn faced several strategic dilemmas. Founded in 2002, LinkedIn by 2008 had become the world's leading professional networking service (PNS), with more than 23 million members. Aiming to "dominate the business of business networking," in Nye's words, LinkedIn allowed individual members to post a profile on the LinkedIn site and then to use the site's tools to search for job opportunities; to recruit job candidates; to find suppliers, partners, and customers; and to seek out expert advice. The company was also expanding into corporate services that would enable companies to build and manage their own online networks. With revenue sources that included advertising, premium subscriptions, job posting services, and business solutions, LinkedIn was on track to bring in revenues in 2008 of up to $100 million. A new funding round in mid-2008 yielded a $1 billion valuation for the company. Three key dilemmas confronted LinkedIn, however. First, at a time when the "walled garden" model of online community building was under siege, it had to decide how far it should open its platform to users. Second, in light of competition from highly popular social network services such as Facebook and MySpace, LinkedIn had to decide whether to incorporate social networking into its value proposition. Third, in an increasingly global business environment, it had to weigh the option of merging with its leading international competitor,

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The Power to Persuade, Abridged

Harvard Business School Note 809-037

This note develops and explains a five-part framework for persuading others to support (or not oppose) a desired course of action.

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VMware Inc., 2008

Harvard Business School Case 709-435

Paul Maritz took the helm of VMware in July 2008, just as the company confronted a radically new competitive environment. Since its founding in 1998, VMware had been the leading provider of virtualization software. Now it faced the kind of threat that every software company dreaded most: Microsoft, the world's largest software maker, was taking direct aim at its core market. As of June 2008, buyers of Microsoft's Windows Server 2008 operating system received a free, bundled version of Hyper-V, an advanced virtualization platform product. Looming over the impending competition between these two companies was the story of the "browser wars," in which Microsoft overwhelmed browser maker Netscape Communications by bundling the Internet Explorer browser with the Windows operating system. Did a similar fate await VMware? Maritz moved quickly and boldly to respond to the Microsoft threat-by deciding to offer a version of VMware's own virtualization platform product for free. But he still had to determine whether VMware's overall strategy was the right one. The case offers an overview of virtualization technology, a brief history of VMware, including descriptions of its acquisition by computer storage giant EMC, its August 2007 IPO, and Maritz's arrival as CEO; a summary of its product lines; a discussion of the ecosystem in which the company operates; and a survey of key competitors, including not only Microsoft, but also Citrix Systems and other providers that use the Xen virtualization platform. Finally, the case offers a description and analysis of several strategic options available to VMware.

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Wyoff and China-LuQuan: Negotiating a Joint Venture (B)

Harvard Business School Supplement 909-014

Through stalled joint venture talks between Pennsylvania-based Wyoff Corp. and Jinan-based China-LuQuan, strategic and cross-cultural negotiation challenges are explored both from American and Chinese perspectives. Wyoff, a leading U.S. chemical company, has been seeking ways to secure the company's foothold in China's emerging market since the late 90s. When approached by China-LuQuan, a major Chinese state-owned chemical producer, in 2000 for a joint-venture opportunity to make a popular chemical catalyst in China, Wyoff, leveraging its superior technology, demanded one-sided terms and played hardball, ruining both the deal and the relationship with China-LuQuan. Seven years later in 2007, Wyoff faced market pressure to again seek a joint venture with China-LuQuan on two other types of products. Both parties had to overcome past distrust to work things out on a series of strategic issues: investment, product slate, marketing, technology, management organization, staffing, etc. In the negotiations, cross-cultural themes (e.g., trust, relationships, communication, time, autonomy, face, etc.) and different negotiation styles created challenges along with the business and strategic issues. The (A) case sets up the negotiations, highlights issue impasses, explores cross-cultural frictions, and poses tactical challenges. The (B) case describes the strategies, tactics, and results of these negotiations.

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Your Strategy—A Strategy Formulation Exercise for the General Management Program (GMP)

Harvard Business School Exercise 708-494

This exercise is meant to help students take strategy concepts learned and adapt/apply them to their organizations.

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