First Look

September 15, 2009

Do you manage creative staffers and wonder whether the carrot (extra money) or the stick (deadlines) bring out their best work? The answer may be neither of the above: Instead, managers should consider less tangible but more effective motivators such as responsibilities that foster a sense of purpose, autonomy, and skill proficiency. According to HBS professor Teresa M. Amabile and doctoral candidate Colin M. Fisher, "People will be most creative when they feel motivated primarily by the interest, enjoyment, satisfaction, and challenge of the work itself—and not by external pressures." This insight is explored in their book chapter "Stimulate Creativity by Fueling Passion" in The Blackwell Handbook of Principles of Organizational Behavior. Among a baker's dozen of cases released this week, "Managing Creativity at Shanghai Tang" explores how one executive tried to adhere to business imperatives while developing an artistic workforce. Meanwhile, "Kansas City Zephyrs Baseball Club, Inc. 2006" helps readers determine a sports team's profitability in the face of common tensions between the office and the baseball diamond.
— Martha Lagace

Working Papers

The CHAT Dataset


This note accompanies the Cross-country Historical Adoption of Technology (CHAT) dataset. CHAT is an unbalanced panel dataset with information on the adoption of over 100 technologies in more than 150 countries since 1800. The data is available for download at We discuss the main aim of CHAT, its scope and limitations, as well as several ways in which we have used the data so far and ways to potentially use the data for other research.

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SuperCorp: How Vanguard Companies Create Innovation, Profits, Growth, and Social Good


Supercorp is based on a 3-year study involving more than 350 interviews in 20 countries to identify the leadership practices and operating methods of major companies seeking profitable growth through innovation that benefits society. For example, when the tsunami and earthquake struck India in 2006, IBM did not just write a check. It used its core competence—expertise in technology—and its skilled people to accomplish what government and relief agencies could not: an information system and supply chain that tracked and managed the flow of relief supplies. Its efforts were crucial in avoiding the all-too-familiar problem in disaster relief-chaos and mobs of desperate people. IBM's actions, as well as many others reported on by Rosabeth Moss Kanter, capture the emerging zeitgeist of business: the vanguard company simultaneously pursuing-and creating synergy between-opportunity, growth, profit, humanistic values, and social good. Vanguard companies have a sense of mission enabling them to deliver what their customers want in a way that is significantly better than the competition. As a formula for the future, it brings together the necessity of financial success shareholders demand and the social conscience demanded from the new generation moving up the corporate ranks.

Stimulate Creativity by Fueling Passion


People will be most creative when they feel motivated primarily by the interest, enjoyment, satisfaction, and challenge of the work itself—and not by external pressures. This is the "Intrinsic Motivation Principle of Creativity" (Amabile, 1996), and it suggests that the social environment, particularly the presence or absence of external pressures in that environment, can influence creativity by influencing people's passion for their work. Managers can influence the level of creativity in their organizations by establishing work environments that support passion for the work. Intrinsic motivation is the motivation to do work because it is interesting, engaging, or positively challenging. In its highest form, it is called passion and can lead to complete absorption in the work (Csikszentmihalyi, 1990). The elements that make up intrinsic motivation include a sense of self-determination in doing the work (rather than a sense of being a pawn of someone else), a feeling that one's skills are being both fully utilized and further developed, and positive feelings about the work, which may be akin to positive affect or positive emotion (e.g., deCharms, 1968; Deci and Ryan, 1985; Lepper and Greene, 1978).

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Peer-to-Peer File Sharing and the Market for Digital Information Goods


We study competitive interaction between two alternative models of digital content distribution over the Internet: peer-to-peer (p2p) file sharing and centralized client-server distribution. We present microfoundations for a stylized model of p2p file sharing where all peers are endowed with standard preferences and show that the endogenous structure of the network is conducive to sharing by a significant number of peers, even if sharing is costlier than freeriding. We build on this model of p2p to analyze the optimal strategy of a profit-maximizing firm, such as Apple, that offers content available at positive prices. We characterize the size of the p2p network as a function of the firm's pricing strategy and show that the firm may be better off setting high prices, allowing the network to survive, and acknowledging that the p2p network may work more efficiently in the presence of the firm than in its absence.

An Exploration of Technology Diffusion


We develop a model that, at the aggregate level, is similar to the one sector neoclasscal growth model, while, at the disaggregate level, has implications for the path of observable measures of technology adoption. We estimate our model using data on the diffusion of 15 technologies in 166 countries over the last two centuries. We evaluate the implications of our estimates for aggregate TFP and per capita income. Our results reveal that, on average, countries have adopted technologies 47 years after their invention. There is substantial variation across technologies and countries. Over the past two centuries, newer technologies have been adopted faster than old ones. The cross-country variation in the adoption of technologies accounts for at least a quarter of per capita income differences.

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Was the Wealth of Nations Determined in 1000 B.C.?


We assemble a dataset on technology adoption in 1000 B.C., 0 A.D., and 1500 A.D. for the predecessors to today's nation states. We find that this very old history of technology adoption is surprisingly significant for today's national development outcomes. Our strong and robust results are for 1500 A.D. determining per capita income today. We find technological persistence across long epochs: from 1000 B.C. to 0 A.D., from 0 A.D. to 1500 A.D., and from 1500 A..D to the present. Although the data allow only some suggestive tests of rival hypotheses to explain long‐run technological persistence, we find the evidence to be most consistent with a model of endogenous technology adoption where the cost of adopting new technologies declines sufficiently with the current level of adoption. The evidence is less consistent with a dominant role for population as predicted by the semi‐endogenous growth models or for country-level factors like culture, genes, or institutions.

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A Theory of Growth and Volatility at the Aggregate and Firm Level


This paper presents an endogenous growth model that explains the evolution of the first and second moments of productivity growth at the aggregate and firm level during the post-war period. Growth is driven by the development of both (i) idiosyncratic R&D innovations and (ii) general innovations that can be freely adopted by many firms. Firm-level volatility is affected primarily by the Schumpeterian dynamics associated with the development of R&D innovations. On the other hand, the variance of aggregate productivity growth is determined mainly by the arrival rate of general innovations. Ceteris paribus, the share of resources spent on development of general innovations, increases with the stability of the market share of the industry leader. As market shares become less persistent, the model predicts an endogenous shift in the allocation of resources from the development of general innovations to the development of R&D innovations. This results in an increase in R&D, an increase in firm-level volatility, and a decline in aggregate volatility. The effect on productivity growth is ambiguous. On the empirical side, this paper documents an upward trend in the instability of market shares. It shows that firm volatility is positively associated with R&D spending, and that R&D is negatively associated with the correlation of growth between sectors which leads to a decline in aggregate volatility.

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Synthesis by Microbes or Chemists? Pharmaceutical Research and Manufacturing in the Antibiotic Era


This article presents a case study of the rise of Pfizer as a leading pharmaceutical company, with a focus on changing relationships between manufacturing technology and R&D between the mid-1940s and the mid-1960s. Pfizer first moved into pharmaceuticals through participation in the U.S. government's penicillin effort during World War II. Having greatly expanded its biological manufacturing capacity to meet state needs, Pfizer adopted an R&D program to find new microbial antibiotics suited to its manufacturing technology after the war ended. In the 1950s and 1960s, Pfizer transformed itself into a chemistry-orientated pharmaceutical firm by reorienting its R&D toward chemistry. This led to a growing divergence between R&D and manufacturing and the eventual replacement of biological manufacturing with chemical manufacturing. The article explores the changing trajectories of R&D and manufacturing at Pfizer, their shifting positions within the firm, and the consequences of these changes and shifts for the firm's success, strategy, and organization.

A Choice Prediction Competition, for Choices from Experience and from Description


Erev, Ert, and Roth organized three choice prediction competitions focused on three related choice tasks: one-shot decisions from description (decisions under risk), one-shot decisions from experience, and repeated decisions from experience. Each competition was based on two experimental datasets: an estimation dataset and a competition dataset. The studies that generated the two datasets used the same methods and subject pool and examined decision problems randomly selected from the same distribution. After collecting the experimental data to be used for estimation, the organizers posted them on the Web, together with their fit with several baseline models, and challenged other researchers to compete to predict the results of the second (competition) set of experimental sessions. Fourteen teams responded to the challenge: the last seven authors of this paper are members of the winning teams. The results highlight the robustness of the difference between decisions from description and decisions from experience. The best predictions of decisions from descriptions were obtained with a stochastic variant of prospect theory assuming that the sensitivity to the weighted value decreases with the distance between the cumulative payoff functions. The best predictions of decisions from experience were obtained with models that assume reliance on small samples. Merits and limitations of the competition method are discussed.

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Self-regulatory Institutions for Solving Environmental Problems: Perspectives and Contributions from the Management Literature


Scholars of management have long considered how institutions can help resolve market imperfections and thereby improve human welfare. Most previous research has emphasized the use of for-profit firms. Such institutions cannot effectively address many environmental problems, however, because environmental problems often transcend firm boundaries. As a result, management scholars have begun to explore the use of more distributed institutional forms. In this article, we review the emerging scholarship on the formation and function of self-regulatory institutions.

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Clusters and Industrial Districts: Common Roots, Different Perspectives

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Board Interlocks and the Propensity to Be Targeted in Private Equity Transactions


In this paper, we examine the propensity for U.S. public companies to become targets for private equity-backed, take-private transactions. We consider the characteristics of 483 private equity-backed deals in the 2000-2007 period relative to public companies, and find that, in addition to the financial drivers studied in previous works, board characteristics and director networks are also associated with deal generation. We find that a company that has a director who has had LBO experience through prior board service is approximately 40% more likely to receive a private equity offer, and that the strength of this effect varies with the influence of the director and the quality of the prior LBO experience. This effect is robust to the most likely alternative explanations and supports the idea that directors and social networks play an influential role in change-of-control transactions.


Cases & Course Materials

Accounting for Interest Rate Derivatives

Harvard Business School Note 108-061

Explains the accounting for interest rate derivatives under Statement of Financial Accounting Standards 133.

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Cabot Pharmaceuticals, Inc.

Harvard Business School Case 510-030

Traces the 12-year career of a pharmaceutical salesperson, Bob Marsh, from recruitment to termination. Marsh has had an uneven career with Cabot Pharmaceuticals and eventually is asked to resign. Following his termination, a number of Marsh's former customers complain vigorously, and Cabot's vice president of sales is asked to investigate the matter and to decide what, if anything, to do about it. The case raises issues in aligning strategy and sales systems, performance evaluation criteria, and on-going performance management processes in field selling situations.

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Eddie Bauer (A)

Harvard Business School Case 110-008

In June 2005, Eddie Bauer, the specialty apparel retailer, emerged from bankruptcy. Under the plan of reorganization former creditors converted their debt into common shares, taking 100% ownership in the reconstituted company. Large banks—including Bank of America and J.P. Morgan Chase—were among the former creditors. In October 2005, Eddie Bauer stock was selling for $24 per share. Analysts were projecting target prices ranging from $22 to $35 per share. Account managers at Bank of America and J.P. Morgan Chase needed to assess whether to hold or sell their shares in Eddie Bauer.

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Eddie Bauer (B)

Harvard Business School Supplement 110-009

In February 2007, shareholders of Eddie Bauer, the specialty apparel retailer, were scheduled to vote on management's proposed sale of the company to two private equity firms. More than 50% of outstanding shares in Eddie Bauer needed to be voted in favor of the deal for it to be finalized. Shareholders needed to decide whether to vote for or against the proposed sale, which was fully endorsed by the board of Eddie Bauer.

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Eddie Bauer (C)

Harvard Business School Supplement 110-010

The Eddie Bauer (C) case describes what happened and the outlook for the retailer.

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Intel NBI: Radio-Frequency Identification

Harvard Business School Case 610-027

The Radio-Frequency Identification (RFID) group was a start-up that was part of Intel's New Business Initiatives. It sought initially to develop and sell a high performance Rf fast read rate module targeted at fixed position readers that might be found in loading docks or applications that demanded fast read speeds in demanding applications. When it was first funded, Intel was in the midst of record growth and was seeking diversification. The new business was viewed as synergistic with Intel's Infrastructure Processor Division (IPD) and its XScale processor business. But as the parent company faced slowing growth and financial challenges, it sold off its XScale unit, leaving RFID with no clear "destination." With the venture's future called into question, the unit manager was faced with the challenge of managing a business with a good technology and customer order book but no place to "fit" within the parent corporation. This case complements 609-043, "Intel NBI: Intel Corporation's New Business Initiatives (A)," and 609-102, "Intel NBI: Intel Corporation's New Business Initiatives (B)." It is one of the failed ventures cited in those cases.

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Intel NBI: Vivonic

Harvard Business School Case 610-025

Vivonic was a start-up that was part of Intel's New Business Initiatives that sought to develop and sell personal health monitoring hardware and software. When it was first funded, Intel was in the midst of record growth and was seeking diversification. But the company lacked domain expertise, and the unit faced many challenges working with existing Intel processes while it strove to establish its own. This case complements 609-043, "Intel NBI: Intel Corporation's New Business Initiatives," and 609-102, "Intel NBI: Intel Corporation's New Business Initiatives (B)." It is one of the failed ventures cited in those cases.

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Kansas City Zephyrs Baseball Club, Inc. 2006

Harvard Business School Case 110-022

This case centers around a dispute between the owners and the players regarding the profitability of professional baseball teams in connection with the negotiations for a new collective bargaining agreement. The case describes the financial statements of the baseball club Kansas City Zephyrs and discusses several items whose accounting treatment is under dispute between owners and players. Students are asked to resolve these disagreements and determine the team's "true" profitability. The discussion reveals the tensions in performance measurement and illustrates the fundamental issues in accrual accounting. The case is best used as an introductory case in a course on financial reporting or performance measurement.

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Managing Creativity at Shanghai Tang

Harvard Business School Case 410-018

Shanghai Tang is a luxury brand that focuses on Chinese-inspired fashion, accessories, and home decoration products. In fall 2008, amidst a growing global economic crisis, Raphael Ie Masne, executive chairman of Shanghai Tang, had to decide what to do with the recently vacant creative director position. Did Shanghai Tang need to hire a new creative director at this uncertain economic time? Or could he take on the role of the creative director himself? In addition, Ie Masne had to grapple with balancing the perennial tensions between business imperatives and the creative aspirations of his designers. How could he better manage employees who see themselves as artists?

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Newton-Wellesley Hospital

Harvard Business School Case 609-088

How will Newton-Wellesley Hospital (NWH) preserve its private practice tradition while remaining effective and competitive in a healthcare industry demanding increasing integration between physicians and hospitals? This is the decision facing Newton-Wellesley Hospital president Mike Jellinek in 2009, as several trends—higher costs and lower revenues, shifting workforce demographics, and changing reimbursement models—threaten to disrupt NWH's organizational model. Similar to other U.S. community hospitals, NWH has historically been staffed primarily with private practitioners; however, in recent years Jellinek has taken several steps toward further integration, such as hiring primary care physicians and hospitalists, and even proposing formation of a physicians' organization (PO)—a move its veteran private practitioners sharply oppose. In 2009, NWH is renowned for high-quality care and is financially strong; yet, given external pressures, most at the hospital agree that reforms are needed to improve the hospital's and physician's profitability while maintaining highest-quality patient care. Diverging opinions over how to improve the hospital has exposed differences between some private practice physicians and the administration. The crux of their disagreement centers on one question: how to make the organizational changes required to keep NWH effective and competitive in the face of a diminishing revenue growth rate, while honoring its tradition of physician independence.

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Nomura's Global Growth: Picking Up Pieces of Lehman

Harvard Business School Case 210-017

What issues commonly arise in international financial management? Kenichi Watanabe and Takumi Shibata, CEO and COO of Nomura Holdings Inc., one of the leading investment banks in Asia, have the opportunity to expand their firm internationally through the acquisition of various parts of Lehman Brothers, an insolvent global investment bank. In evaluating this opportunity, students must consider the complexities of such expansion, including the challenges posed by a multinational insolvency, the difficulties of post-merger integration in a cross-border acquisition, and more general issues related to currency hedging and international taxation.

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Shenzhen Development Bank

Harvard Business School Case 210-020

Weijian Shan, Managing Partner of Newbridge Capital, faces a tough call in regard to his firm's investment in Shenzhen Development Bank, China's fifteenth-largest commercial bank listed on the Shenzhen Stock Exchange. Due to the aggressive lobby of the existing management at the bank, the Shenzhen government didn't receive central government's support on Newbridge's investment and had to back out of the deal with Newbridge. Weijian Shan has to make a choice between two alternatives: 1) Give up pursuing the deal given huge political risk out of his control; 2) Work out an action plan and re-negotiate the deal.

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The TSMC Way: Meeting Customer Needs at Taiwan Semiconductor Manufacturing Co.

Harvard Business School Case 610-003

When L.C. Tu receives an emergency order, he is confronted with a range of production scheduling choices, each of which has unique costs and trade-offs. The case was designed to help students understand job-shop style production and the impact of disruptions and reactive scheduling. Students use two of Taiwan Semiconductor Manufacturing Company's mainstream processes as a vehicle for analysis. The case describes a real situation in which upper management accepts an emergency order. By working through the impact on the production system, students should develop a feel for how shifting demand in a large factory that is structured as a job shop alters the demands on, and utilization rates of, expensive capital equipment in a complex way. As bottlenecks shift, students can explore several alternatives, each with different costs and trade-offs. Students may also reflect on the true cost of providing the extraordinary service, and whether management properly takes the impact on operations into account when it makes customer commitments.

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