First Look

October 30, 2007

Decision-making gets much more uncertain as we enter novel environments: a new market, a new geography, a new industry phase. Why? We don't have on-the-ground experience to guide us on our new path. So we often turn to analogy to provide perspective—the cognitive process by which we interpret a problem associatively in terms of past experiences. But how does this use of analogy affect strategy making in individuals and groups operating in new territories? Research in this area is underrepresented, but a new working paper by HBS professor Giovanni M. Gavetti and colleague Massimo Warglien begins to fill in the empty areas. Their paper, "Recognizing the New: A Multi-Agent Model of Analogy in Strategic Decision-Making," offers interesting insights and theoretical foundations that could lead to a better understanding and improvement of strategic choice. Also debuting this week, Professor Rosabeth Moss Kanter's America the Principled: 6 Opportunities for Becoming a Can-Do Nation Once Again lays out an agenda for reviving the American spirit. Teachers may want to note a class exercise called "Pitch Yourself," which "helps students develop an elevator pitch for their most important asset—themselves."
— Sean Silverthorne

Working Papers

Recognizing the New: A Multi-Agent Model of Analogy in Strategic Decision-Making


In novel environments, strategic decision-making is often premised on analogy, and recognition lies at its heart. Recognition refers to a class of cognitive processes through which a problem is interpreted associatively in terms of something that has been experienced in the past. Despite recognition's centrality to strategic choice, we have limited knowledge of its nature and its influence on strategic decision-making in individuals, much less in the multi-agent settings in which these decisions typically occur. In this paper, we develop a model that extends neural nets techniques to capture recognition processes in groups of decision-makers. We use the model to derive some fundamental properties of collective recognition. These properties help us understand how the intensity of communication among group-members and some select structural characteristics of the group affect recognition outcomes in novel and structurally ambiguous worlds. In particular, we demonstrate that communication pressure can lead agents to converge to shared interpretations or recognitions that are new to each of them, thereby helping them recognize problems that are genuinely new. We also show that when communication is too intense, its beneficial aspects give way to the pathologies of "groupthink." We conclude by discussing how our results are relevant to strategic choice, as well as how our model complements both other theories of choice that view the role of experience as central and recent work in population ecology that emphasizes cognitive processes.

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Cases & Course Materials


Harvard Business School Case 207-099

BASIX, an Indian microfinance corporation, must decide whether to continue to sell weather insurance to its clients. A brand-new financial product, weather insurance pays if measured rainfall during the growing season falls below a pre-specified limit. Mr. Sattaiah, managing director of the BASIX's bank, considers a revised insurance policy for the coming season, weighing the costs and potential risks of expanding the product against the potential benefits.

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Pitch Yourself!

Harvard Business School Exercise 508-039

Helps students develop an elevator pitch for their most important asset—themselves. Before class students are asked to interview a potential employer and to develop preliminary elevator pitches. Once in class, students work through an exercise that helps them refine their elevator pitches and better understand several key marketing principles. Leads to an engaging and thought-provoking discussion.

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Procter & Gamble: Organization 2005 (A)

Harvard Business School Case 707-519

In response to a huge crisis in 2000, the new CEO of Procter & Gamble has to decide whether to continue with an unusual organizational design or to revert to the old matrix organization. Describes all the organizational designs used by Procter & Gamble from the 1920s onward, including geographic, product, and matrix architectures. Market development organizations, global business units, and global business services unit, each of which is heavily interdependent with the others and none of which has a clear decision-making advantage, comprise the unusual organizational design. Examination of the different organizational designs, trade-offs associated with each organizational architecture as well as the accompanying implementation problems.

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Managing School Districts for High Performance: Cases in Public Education Leadership


Managing School Districts for High Performance brings together more than 20 case studies and other readings that offer a powerful and transformative approach to advancing and sustaining the work of school improvement. At the center of this work is the concept of organizational coherence: aligning organizational design, human capital management, resource allocation, and accountability and performance improvement systems to support an overarching strategy. This central idea provides a valuable conceptual framework for current and future school leaders. The case studies presented in Managing School Districts for High Performance grow out of the Public Education Leadership Project (PELP), a unique partnership between the Harvard Business School, the Harvard Graduate School of Education, and a network of urban school districts. This rich array of cases explores the managerial challenges districts face as they seek to ensure rich learning opportunities and high achievement for all students across a system of schools.

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Managing School Districts for High Performance: Instructor's Guide


Teaching by the case method has the potential to affect profoundly the way that teachers, students, and professionals approach the learning process. This companion volume includes detailed teaching notes on each case in the coursebook, with an emphasis on making cases drawn from other disciplines relevant to education administrators. It also includes C. Roland Christensen's classic essay on teaching by the case method, "The Premises and Practices of Discussion Teaching." Both experienced instructors and those new to the case method will find this instructor's guide an invaluable resource.

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America the Principled: 6 Opportunities for Becoming a Can-Do Nation Once Again


This book draws on the author's multiple research projects and field observations to analyze problems facing the United States in recent years and to create an agenda for renewing American strengths through returning to core American principles—but in new ways suitable to 21st century conditions. On the agenda are 6 opportunities for action by citizens and policy-makers alike: (1) securing the future through innovation strategies suitable for an emerging "white coat economy" that is discovery-based; (2) pursuing happiness by addressing the connection between work and family life and reinventing work to help women in particular use their talents flexibly; (3) encouraging the growth of good companies that can replace imperial excess with values-based capitalism; (4) restoring respect for government by ending decades of contempt for the public sector and ensuring competence in that vital sector; (5) connecting with the world in a way that fits the new realities of the global economy, fosters leadership, and uses citizen-diplomats to befriend moderates in troubled regions and business networks to ensure success in the major emerging economies; and (6) building community by stressing national and community service for all age groups to bridge social divides and unite citizens in a sense of common purpose. The book offers examples of solutions to address each opportunity and concludes with a call to action.

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Will Harmonizing Accounting Standards Really Harmonize Accounting?: Evidence from Non-U.S. Firms Adopting US GAAP


International harmonization of accounting standards appears to be inevitable. However, little evidence exists regarding whether harmonizing accounting standards will result in actual harmonization of accounting practices. Using a sample of non-US firms that adopt US GAAP to provide evidence on this issue, we find that most firms that adopt US GAAP adjust their accounting methods to those required by US GAAP. Properties of the firms' accounting numbers also change significantly after adopting US GAAP, but do not fully converge towards that of U.S. firms. In the cross-section, regulatory oversight is associated with more successful implementation of US GAAP; firm-specific capital market incentives are not. These results suggest that harmonizing accounting standards may result in more comparable accounting methods and numbers, but that effective regulatory oversight will be important in reaching this outcome.

Pharmacovigilance and the Missing Denominator: The Changing Context of Pharmaceutical Risk Mitigation


In the wake of Vioxx, Avandia, and other recent prominent cases of drugs found to cause side effects after marketing, the safety of pharmaceuticals has come to the forefront of American public policy. Press attention, congressional investigations, and legislative debates are highlighting the complex risk choices faced by patients, physicians, industry, and regulators in the post-market arena. To put current events in context, this article reviews historically the key institutions that have collected and responded to reports of side effects in the United States since the early 19th century. Three major periods emerge from this survey: an era of professional control; an era of regulation by the state; and a still-emerging information era dominated by statistical analysis of consumer populations. In each period, reformers sought to extend methods for uncovering side effects from the clinic to the market, yet a fundamental lack of consensus on how to determine the scope and magnitude of any one side effect plagued risk management efforts. The article concludes that it is critical to make institutions in our current 'consumer era' more attentive to individual patients who are put at risk.

Collaborative Brokerage, Generative Creativity, and Creative Success


Analyzing data on utility patents from 1975 to 2002 in the careers of 35,400 collaborative inventors, this study examines the influence of brokered versus cohesive collaborative social structures on an individual's creativity. We test the hypothesis that brokerage—direct ties to collaborators who themselves do not have direct ties to each other—leads to greater collaborative creativity. We then test interaction hypotheses on the marginal benefits of cohesion, when collaborators have independent ties between themselves that do not include the individual. We identify the moderators of brokerage and argue for contingent benefits, based on the interaction of structure with the attributes, career experiences, and extended networks of individuals and their collaborators. Using a social definition of creative success, we also trace the development of creative ideas from their generation through future use by others. We test the hypothesis that brokered ideas are less likely to be used in future creative efforts. The results illustrate how collaborative brokerage can aid in the generation of an idea but then hamper its diffusion and use by others.

The Principles of Distributed Innovation


Distributed innovation systems are an approach to organizing for innovation that appear to meet the challenge of accessing knowledge that resides outside the boundaries of any one organization. We provide an overview of distributed innovation systems that are achieving success in three different industries. We explore why people participate, the organizing principles of production, and the implications for intellectual property policy. Finally, the potential extensions and limitations of this alternative model of innovation are considered.