First Look

November 14, 2017

Among the highlights included in new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

Watching violent crimes

You might think that victims of violent crimes would be more upset than non-victims when subsequently watching crime videos. In fact, the opposite is true, according to research by Rafael Di Tella, Lucía Freira, Ramiro H. Gálvez, Ernesto Schargrodsky, Diego Shalom, and Mariano Sigman. "We measure biological markers of stress and behavioral indices of cognitive control before and after treated participants watch a series of real, crime-related videos (while the control group watches non-crime-related videos)," they write. "Not previously victimized participants exposed to the treatment video show significant changes in cortisol level, heart rate, and measures of cognitive control. Instead, previously victimized individuals who are exposed to the treatment video show biological markers and cognitive performance comparable to those measured in individuals exposed to the control video." Crime and Violence: Desensitization in Victims to Watching Criminal Events.

Attracting truthful customer reviews

How can online marketplaces garner truthful customer reviews? Ben Edelman digs into that question in the Winter 2017 issue of Oxford Review of Economic Policy. Among his insights: "Product recommendation algorithms have long welcomed the prospect of different users seeking different products. Perhaps review processing should similarly embrace users’ diversity." The Market Design and Policy of Online Review Platforms.

Approving medical devices

In a forthcoming JAMA Cardiology article, Ariel Dora Stern and Aaron V. Kaplan look at the role of regulatory oversight in the introduction of new medical devices. "Medical device innovation requires a robust ecosystem that involves medical technology innovators, often at start-ups, large medical device manufacturers, and clinical investigators," they explain. "Central to this process is strong regulatory oversight, which in the United States is provided by the U.S. Food and Drug Administration’s Center for Devices and Radiologic Health (FDA/CDRH)." The Central and Unacknowledged Role of the U.S. Food and Drug Administration in the Design and Execution of Medical Device Pivotal Trials.

— Carmen Nobel
 
  • October 2017
  • Negotiation Journal

Prescriptions Based on a Realistic View of Human Behavior

By: Bazerman, Max

Abstract—No abstract available.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53096

  • November–December 2017
  • Harvard Business Review

Are You Suited for a Start-up?

By: Bussgang, Jeffrey

Abstract—Relative to established organizations, start-ups can be hard to figure out. What are the jobs to be done? The best entry points? How can you tell whether a company has potential for success and is the right fit for you? The author advises that you first assess whether you’re suited for a young, entrepreneurial organization. Start-up joiners need to do three things well: manage uncertainty, push the limits, and think like an owner. He then outlines four steps for choosing the right company: Pick a domain (find a field you’re passionate about); pick a city (preferably in an entrepreneurial hub); pick a stage ("jungle," "dirt road," or "highway"); and pick a winner (do due diligence on the founding team, the market, and the business model). Once you’ve made those choices, you’ll need to sell yourself, and Bussgang suggests how: Identify key players at the companies you’re interested in and find ways to connect with them. When you meet, articulate how you can contribute; engage your interviewers about their work; and offer expertise, advice, or contacts with no expectation of reciprocity. Suddenly you’ll be perceived as someone who is already adding value.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53461

  • 2017
  • Making Research Matter: A Psychologist's Guide to Public Engagement

Government and Organizations: Transforming Institutions Using Behavioral Insights

By: Dalton, Abigail, and Max Bazerman

Abstract—This volume gathers well-known experts to discuss how researchers can impact a broader audience, by lending their scientific expertise to pressing social issues, current events, and public debates. The landmark Brown v. Board of Education case, in which the Supreme Court cited psychological evidence in overturning school segregation, is just one example of the positive and noteworthy impact social science research can have on the world beyond academia. But many researchers today have trouble communicating with non-academic audiences and engaging the broader society. With pointers on talking to the media, testifying as an expert witness, dealing with governmental organizations, working with schools and students, and influencing public policy, this volume helps social scientists forge the vital link between scholarship and social engagement. Contributors include prominent experts from a wide range of specialties, such as academic psychologists, Harvard Business School professors, directors of organizations, and government officials.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51447

  • Winter 2017
  • Oxford Review of Economic Policy

The Market Design and Policy of Online Review Platforms

By: Edelman, Benjamin

Abstract—I present the institutions and incentives of online reviews, including attracting initial reviews, assuring truthful reviews of genuine experiences, and avoiding inflated or deceptive reviews. I also explore the competition and consumer protection concerns associated with reviews.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53507

  • forthcoming
  • Journal of Financial Economics

Bubbles for Fama

By: Greenwood, Robin, Andrei Shleifer, and Yang You

Abstract—We evaluate Eugene Fama's claim that stock prices do not exhibit price bubbles. Based on U.S. industry returns 1926–2014 and international sector returns 1985–2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going forward; (2) such sharp price increases predict a substantially heightened probability of a crash; (3) attributes of the price run-up, including volatility, turnover, issuance, and the price path of the run-up, can all help forecast an eventual crash and future returns; and (4) some of these characteristics can help investors earn superior returns by timing the bubble. Results hold similarly in U.S. and international samples.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53447

  • November–December 2017
  • Harvard Business Review

The Board's New Innovation Imperative: Directors Need to Rethink Their Roles and Their Attitude to Risk

By: Hill, Linda A., and George Davis

Abstract—As firms scramble for competitive advantage, boards—once the cautious voices urging management to mitigate risk—are now calling for breakthrough innovation. Indeed, avoiding risk is now seen as the riskiest proposition of all. In speaking with CEOs and board members from a range of industries, the authors identified four common obstacles most boards face in governing innovation: an outdated risk agenda, insufficient time, lack of expertise, and a relationship with management that needs retuning. Embracing innovation and its inherent risks requires that boards and senior management develop new ways of working together. To bolster out-of-the-box thinking at their companies, boards should promote diversity among members. They should foster "creative abrasion" to keep ideas flowing and rethink traditional methods of governing. And they must learn to embrace and encourage risk.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53459

  • Winter 2017
  • Oxford Review of Economic Policy

An Invitation to Market Design

By: Kominers, Scott Duke, Alexander Teytelboym, and Vincent P. Crawford

Abstract—Market design seeks to translate economic theory and analysis into practical solutions to real-world problems. By redesigning both the rules that guide market transactions and the infrastructure that enables those transactions to take place, market designers can address a broad range of market failures. In this paper, we illustrate the process and power of market design through three examples: the design of medical residency matching programs, a scrip system to allocate food donations to food banks, and the recent "Incentive Auction" that reallocated wireless spectrum from television broadcasters to telecoms. Our lead examples show how effective market design can encourage participation, reduce gaming, and aggregate information in order to improve liquidity, efficiency, and equity in markets. We also discuss a number of fruitful applications of market design in other areas of economic and public policy.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53493

  • November–December 2017
  • Harvard Business Review

Why Every Organization Needs an Augmented Reality Strategy

By: Porter, Michael E., and James E. Heppelmann

Abstract—While the physical world is three-dimensional, most data is trapped on two-dimensional pages and screens. This gulf between the real and digital worlds prevents us from fully exploiting the volumes of information now available to us. Augmented reality (AR), a set of technologies that superimposes digital data and images on physical objects and environments, is closing this gap. By putting information directly into the context in which we’ll apply it, AR increases our ability to absorb and act on it. AR will become the new interface between humans and machines, say Michael E. Porter of Harvard and James E. Heppelmann, the CEO of the industrial software maker PTC. Many people are familiar with AR entertainment applications, such as Snapchat filters, but AR is being applied in far more consequential ways in business. Pioneering organizations are already implementing it in product development, manufacturing, logistics, marketing, service, and training—and are seeing major gains in quality and productivity. AR improves how users visualize information, receive and follow instructions, and interact with products. AccuVein, for instance, uses AR technology that converts the heat signature of a patient’s veins into an image superimposed on the skin, making them much easier to locate. Boeing uses AR to show trainees how to assemble an aircraft wing—and has cut the time it takes them to do that task by 35%. At GE, factory workers have achieved a similar gain in efficiency by using voice commands in AR experiences to perform complex wiring. AR will have a wide impact on how companies compete. This article walks readers through the questions firms need to ask when integrating it into their strategies and operations. The article also includes HBR’s first embedded AR experiences, which readers can launch by downloading a new HBR app on their mobile devices and then pointing them at targeted images in the magazine’s pages.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53458

  • November–December 2017
  • Harvard Business Review

The IT Transformation Health Care Needs

By: Sahni, Nikhil R., Robert S. Huckman, Anuraag Chigurupati, and David M. Cutler

Abstract—In recent years, health care organizations have made sizable investments in information technology. They’ve used their IT systems to replace paper records with electronic ones and to improve billing processes, thereby boosting revenue. But so far, IT has been of little value in making medical care delivery more effective or less expensive. How can health care organizations change this? One key is to prioritize quality improvement over cost cutting. By harnessing IT to help design better clinical practices, it’s possible to achieve better patient outcomes and better financial performance. It is also vital to gather good information—by using simpler, more-organic collection methods—and to make it actionable by applying analytics. Finally, many organizations will need to forge new business and operating models, expanding their IT staffs, revamping how their clinical staffs work, and creating new payment structures. The authors provide numerous examples of health care organizations that are taking these steps—and seeing impressive results.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53460

Abstract—The introduction of new medical devices has transformed cardiovascular care in recent decades. Devices, such as heart valves, pacemakers, stents, ventricular assist devices, and implantable defibrillators, have prolonged and improved the quality of life for millions of patients worldwide. Medical device innovation requires a robust ecosystem that involves medical technology innovators, often at start-ups, large medical device manufacturers, and clinical investigators. Central to this process is strong regulatory oversight, which in the United States is provided by the U.S. Food and Drug Administration’s Center for Devices and Radiologic Health (FDA/CDRH). This viewpoint discusses the effect of the regulatory approval process and the role that FDA/CDRH plays in the design and execution of the pivotal trials (clinical studies) that are used to support the regulatory approval of high-risk devices. We also review norms in the publication of pivotal trials in peer-reviewed medical journals; these publications often fail to acknowledge the role of the FDA/CRH or discuss results within the context of the device approval process.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53492

Lessons Unlearned? Corporate Debt in Emerging Markets

By: Alfaro, Laura, Gonzalo Asis, Anusha Chari, and Ugo Panizza

Abstract—This paper documents a set of new stylized facts about leverage and financial fragility for emerging market firms following the Global Financial Crisis (GFC). Corporate debt vulnerability indicators during the Asian Financial Crisis (AFC) attributed to corporate financial roots provide a benchmark for comparison. Firm-level data show that post-GFC, emerging market corporate balance sheet indicators have not deteriorated to AFC crisis-country levels. However, more countries are close to or in the “vulnerable” range of Altman’s Z-score, and average leverage for the entire emerging market sample is higher in the post-GFC period than during the AFC. Regression estimates suggest that the relationship between leverage, exchange rate depreciations, and corporate financial distress is time varying. A central finding is that firm size is correlated with corporate distress and, further, that currency depreciations amplify the impact of leverage on financial vulnerability for large firms during a crisis. Consistent with Gabaix (2011) the paper finds a granularity effect in that large firms are systemically important—idiosyncratic shocks to the sales growth of large firms significantly correlate with GDP growth in our emerging markets sample. Relatedly, the sales growth of large firms with higher leverage is more adversely impacted by exchange rate shocks. While this result holds for the average country in our sample, there is substantial cross-country heterogeneity.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52652

Governance Through Shame and Aspiration: Index Creation and Corporate Behavior

By: Chattopadhyay, Akash, Matthew D. Shaffer, and Charles C.Y. Wang

Abstract—We study whether stock indexes can be a mechanism for transforming long-standing corporate behavior. After decades of low corporate profitability in Japan, the JPX-Nikkei400 Index was introduced in 2014. Each year the Index selected 400 large and liquid firms deemed best performing in terms of profitability; membership is considered highly prestigious. We document that index-inclusion incentives have led firms to increase return on equity proportionally by 41% on average, via higher margins, efficiency, or shareholder payouts, depending on where they had slack. These incentives are driven by the prestige associated with the Index, rather than direct-pecuniary or capital-market benefits. Back-of-the-envelope estimates suggest that the index-inclusion incentives accounted for 16% of the average increase in aggregate annual earnings and 20% of the growth in aggregate market capitalization over our sample period. Stock indexes can affect behavior by functioning as a source of prestige.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53030

Crime and Violence: Desensitization in Victims to Watching Criminal Events

By: Di Tella, Rafael, Lucía Freira, Ramiro H. Gálvez, Ernesto Schargrodsky, Diego Shalom, and Mariano Sigman

Abstract—We study desensitization to crime in a lab experiment by showing footage of criminal acts to a group of subjects, some of whom have been previously victimized. We measure biological markers of stress and behavioral indices of cognitive control before and after treated participants watch a series of real, crime-related videos (while the control group watches non-crime-related videos). Not previously victimized participants exposed to the treatment video show significant changes in cortisol level, heart rate, and measures of cognitive control. Instead, previously victimized individuals who are exposed to the treatment video show biological markers and cognitive performance comparable to those measured in individuals exposed to the control video. These results suggest a phenomenon of desensitization or habituation of victims to crime exposure.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53446

Lifting the Veil: The Benefits of Cost Transparency

By: Mohan, Bhavya, Ryan W. Buell, and Leslie K. John

Abstract—Firms typically treat their costs as tightly guarded secrets. In six studies, we tested the effect of firm disclosure of the costs to produce a product (i.e., cost transparency) on purchase interest. We began with a natural field experiment conducted with an online retailer, in which cost transparency increased sales (Study 1A). We subsequently replicated this field experiment in a controlled online experiment (Study 1B) and showed that cost transparency boosts purchase interest over and above other forms of transparency (Study 2). Guided by our theoretical framework, Studies 3 and 4 showed that the capacity for cost transparency to boost purchase interest is driven by engendering consumer trust in the firm. Finally, Study 5 demonstrated the critical role of the voluntary nature of the disclosure, showing that cost transparency boosts purchase interest only when voluntarily instated by the firm, as opposed to involuntarily (e.g., as required by law). These results imply that the proactive revelation of costs can improve a firm’s bottom line.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=48019

Abstract—This qualitative study examines how influential actors in the Swiss watch industry employed history as a strategic resource in response to the introduction of quartz watch technology. Our primary data comprise 136 in-depth interviews with leading industry executives, collectors, auction house operators, and other actors who played active roles as institutional entrepreneurs and guardians in shaping the resurgence of the industry. We find that the interaction of actors adopting prospector and defender strategic orientations toward history created a complementarity of technical and symbolic resources that contributed to the resilience of Swiss watchmaking through two mechanisms of resolution: technology approbation and creative abrasion.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=49377

  • Harvard Business School Case 118-015

Tamarin SEO App

This case was written for the EC course “Managing with Data Science.” The course provides MBA students with no programming experience an introduction to the field of data science and its applications in business. Students learn to (1) carefully articulate the business ask, (2) reason carefully from the ask; through metrics and models, and outputs; and (3) evaluate outputs from models to (4) develop a plan for action. In this case students explore the challenges of using sentiment analysis to monitor and understand public perception around brands. Technical topics include building a filtering classifier using naive Bayes and sentiment analysis.

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https://cb.hbsp.harvard.edu/cbmp/product/118015-PDF-ENG

  • Harvard Business School Case 218-026

GM's Capital Allocation Framework

In March of 2015, General Motors announced the details of a newly established capital allocation framework. This framework provided a target for return on invested capital, guidelines for capital structure choices, and policies related to payouts. Senior managers face questions about how these policies should be implemented and what impact they might have.

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https://cb.hbsp.harvard.edu/cbmp/product/218026-PDF-ENG

  • Harvard Business School Case 617-024

Product Development Fundamentals

This note introduces key managerial issues in new product development. It describes the product development funnel and alternative approaches to structuring product development teams including functional, lightweight, heavyweight, and autonomous/dedicated teams, which vary in their capacity to manage integration. More formal product development approaches including the stage-gate process and critical-path method are described, as are agile methods and principles—and related tools such as scrum, extreme programming, and feature-driven development. Product development metrics including lead time, capacity, and productivity are defined and discussed.

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https://cb.hbsp.harvard.edu/cbmp/product/617024-PDF-ENG

  • Harvard Business School Case 617-050

BlaBlaCar: The Road Ahead...

In 2017, the co-founders of BlaBlaCar—the world’s largest long-distance carpooling company—reflected on the evolution of their venture and the way forward. BlaBlaCar had reached critical mass and size; yet staying still was not going to be enough to be relevant and competitive in the hyper competitive sharing economy sector. The co-founders felt that the time was now to capitalize on the trust that the platform had built with its members and explore adjacent opportunities. The options in front of them represented a wide variety of ways to grow, but how should the team prioritize and figure out which opportunities represented a viable business strategy for their company?

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https://cb.hbsp.harvard.edu/cbmp/product/617050-PDF-ENG

  • Harvard Business School Case 218-005

Investing in Commodities at Global Endowment Management

No abstract available.

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https://cb.hbsp.harvard.edu/cbmp/product/218005-PDF-ENG