First Look

November 7, 2017

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

Founder CEOs manage badly

People who start companies often are not very good at managing them, according to research by Victor Manuel Bennett, Megan Lawrence, and Raffaella Sadun. "We find that founder CEO firms have the lowest management scores of any owner-manager pair type and that this difference is associated with significant performance differentials," they write. Are Founder CEOs Good Managers?

Sniff your spouse to reduce stress

Stressed out? Try catching a whiff of your romantic partner. This according to new research by Marlise Hofer, Hanne Collins, Ashley Whillans, and Frances Chen, who randomly assigned 96 women to one of three scents—their romantic partner's, a stranger's, or a neutral scent—and measured the women's hormone levels. Perceived stress was reduced in women who were exposed to a partner's scent. A stranger's scent caused stress levels to rise. Olfactory Cues from Romantic Partners and Strangers Moderate Women's Responses to Stress.

The Russian Revolution remains relevant

One hundred years after the end of the Russian Revolution, Jeremy Friedman and Peter Rutland take a look at Lenin's work Imperialism: The Highest Stage of Capitalism. "That work shifted the focus from workers’ struggles within one country to the dynamics of capitalism as a global system," they write. "As capitalism stumbles through yet another global crisis today, what parts of Lenin’s fevered vision remain relevant 100 years later?" Anti-imperialism: The Leninist Legacy and the Fate of World Revolution.

Other new publications from Harvard Business School faculty are listed below.

— Carmen Nobel
 
  • Fall 2017
  • Business History Review

The Alternative Business History: Business in Emerging Markets

By: Austin, Gareth, Carlos Davila, and Geoffrey Jones

Abstract—This article suggests that the business history of emerging markets should be seen as an alternative business history rather than merely adding new settings to explore established core debates. The discipline of business history evolved around the corporate strategies and structures of developed economies. The growing literature on the business history of emerging markets addresses contexts that are different from developed markets. These regions experienced long eras of foreign domination, dealt with extensive state intervention, faced institutional inefficiencies, and experienced extended turbulence. This article suggests that this context drove different business responses than in the developed world. Entrepreneurs counted more than managerial hierarchies, immigrants and diaspora were critical sources of entrepreneurship, illegal and informal forms of business were commonplace, diversified business groups rather than the M-form became the major form of large-scale business, corporate strategies to deal with turbulence were essential, and radical corporate social responsibility concepts were pursued by some firms.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53419

  • forthcoming
  • Capitalism Beyond Mutuality

New Prospects for Organizational Democracy? How the Joint Pursuit of Social and Financial Goals Challenges Traditional Organizational Designs

By: Battilana, Julie, Michael Fuerstein, and Michael Lee

Abstract—For an extended period during the first half of the 20th century, industrial democracy was a vibrant movement, with ideological and organizational ties to a thriving unionism. In 2015, however, things look different. While there are instances of democracy in the business landscape, hierarchical forms of organization remain dominant, and organizational democracy commands only scant attention in organizational theory. The precise reasons for this trend are undoubtedly complex and bridge economic, sociological, and psychological concerns. Nonetheless, a key indicator of this trend is the dominance of the view of organizational economists that hierarchy outperforms non-hierarchical alternatives (including democracy) on grounds of economic efficiency across a wide range of contexts (Coase, 1937; Williamson, 1981; Ouchi, 1980). The underrepresentation of democratic models compared to hierarchy would thus seem to reflect, in part, a triumph of this economic logic (e.g., Hansmann, 1996). What does the balance of arguments look like, however, when values besides efficient revenue production are brought into the picture? The question is not hypothetical. In recent years, an ever increasing number of corporations have developed and adopted socially responsible behaviors, thereby hybridizing aspects of corporate businesses and social organizations (Margolis & Walsh, 2003; Kanter, 2009; Porter & Kramer, 2011). Particularly striking is the marked growth of social enterprises, which adopt a social mission as their principal objective but sustain themselves through commercial activities (Battilana and Lee, 2014; Battilana, 2015). This deliberate integration of social concerns into the value proposition of businesses—be they corporate businesses or social enterprises—is notable in its own right as a challenge to conventional conceptions of what the very practice of business is about. It is also notable, from an organizational point of view, insofar as it raises questions about what model is best suited to the integration of nonfinancial concerns. Does the joint pursuit of commercial and social objectives require new ways of organizing? In this essay we argue that it does. Or at least—to put our thesis in more measured terms—we argue that the joint pursuit of financial and social objectives warrants significant rethinking of organizational democracy’s merits compared both to hierarchy and to nondemocratic alternatives to hierarchy. In making this argument, we draw on some parallels with political democracy: the success of political democracy as a model for integrating diverse values offers some grounds for thinking about parallel virtues in the business case. Our goal is not to offer any general prescription for organizational democracy at this stage but, instead, to argue that the merits of more democratic models of organizing deserve significant reevaluation in the context of organizations pursuing multiple objectives. We proceed, first, by drawing on an extensive literature review to assess the way in which organizational democracy has been conceptualized in recent decades as well as to document the relative lack of substantive discussion about it in comparison with some other alternatives to hierarchy. We then characterize the recent surge of socially engaged models of enterprise and press the case that this turning point warrants reconsideration of the merits of organizational democracy. We close with some reflections on the future prospects of the democratic model and the limitations of our argument.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53115

Abstract—During the last third of the nineteenth century, a debate emerged in a number of European countries on the “American danger.” Responding to the rapid rise of the United States as the world’s most important economy, some European observers feared their nations’ declining competitiveness in the face of the territorial extent of the United States and its ability to integrate a dynamic industrial sector with ample raw material supplies, agriculture commodities, markets, and labor into one national economy. This “second great divergence” provoked a range of responses, as statesmen, capitalists, and intellectuals advocated for territorial rearrangements of various European economies, a discussion that lasted with greater or lesser intensity from the 1870s to the 1950s. Their sometimes competing and sometimes mutually reinforcing efforts focused on African colonialism, European integration, and violent territorial expansion within Europe itself. Using the debate as a lens to understand the connections between a wide range of policy responses, this article argues that efforts to territorialize capitalist economies delineate a particular moment in the long history of capitalism, and it demonstrates the unsettling effects of the rise of the United States on European powers.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53430

  • 2017
  • Measuring Entrepreneurial Businesses: Current Knowledge and Challenges

Are Founder CEOs Good Managers?

By: Bennett, Victor Manuel, Megan Lawrence, and Raffaella Sadun

Abstract—We investigate the management practices adopted by firms where the founders are also the CEOs using data from the World Management Survey. We find that founder CEO firms have the lowest management scores of any owner-manager pair type and that this difference is associated with significant performance differentials. We propose three possible reasons for the managerial gap of founder CEO firms: a) informational problems preventing a clear understanding of the weakness of their firms’ managerial practices; b) institutional factors dampening the incentive to adopt managerial practices; and c) nonpecuniary returns to potentially inefficient but power-preserving practices. The findings presented in the paper provide support for a) and c), while we do not find evidence that the management practices of founder CEO firms vary with respect to the characteristics of the institutional environments in which they are embedded.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53432

  • Fall 2017
  • Slavic Review

Anti-imperialism: The Leninist Legacy and the Fate of World Revolution

By: Friedman, Jeremy, and Peter Rutland

Abstract—The most important of Lenin’s writings was, arguably, Imperialism: the Highest Stage of Capitalism. That work shifted the focus from workers’ struggles within one country to the dynamics of capitalism as a global system. The Leninist project thereby inextricably linked the causes of economic justice and national liberation, a fateful step in light of the transformation of the world wrought by decolonization. As capitalism stumbles through yet another global crisis today, what parts of Lenin’s fevered vision remain relevant 100 years later?

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53441

  • forthcoming
  • Journal of Personality and Social Psychology

Olfactory Cues from Romantic Partners and Strangers Moderate Women’s Responses to Stress

By: Hofer, Marlise, Hanne Collins, A.V. Whillans, and Frances Chen

Abstract—The scent of another person can activate memories, trigger emotions, and spark romantic attraction; however, almost nothing is known about whether and how human scents influence responses to stress. In the current study, 96 women were randomly assigned to smell one of three scents (their romantic partner’s, a stranger’s, or a neutral scent) and exposed to an acute stressor (Trier Social Stress Test). Perceived stress and cortisol were measured continuously throughout the study (5 & 7 times, respectively). Perceived stress was reduced in women who were exposed to their partner’s scent. This reduction was observed during stress anticipation and stress recovery. Cortisol levels were elevated in women who were exposed to a stranger’s scent. This elevation was observed throughout stress anticipation, peak stress, and stress recovery. The current work speaks to the critical role of human olfactory cues in social communication and reveals that social scents can impact both psychological and physiological reactions to stress.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53436

  • forthcoming
  • Operations Research Letters

Orienteering for Electioneering

By: Kallenbach, Jonah, Robert Kleinberg, and Scott Duke Kominers

Abstract—In this paper, we introduce a combinatorial optimization problem that models the investment decision a political candidate faces when treating the opponent’s campaign plan as given. Our formulation accounts for both the time cost of traveling between districts and the time expended while campaigning within districts. We describe a polynomial-time algorithm that computes a (2 + ∈)-approximation to the optimal solution of a discrete version of our problem by reducing the problem to another combinatorial optimization problem known as Orienteering.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53414

Abstract—Workplaces have adopted internal social tools—think stand-alone technologies such as Slack, Yammer, and Chatter, or embedded applications such as Microsoft Teams and JIRA—at a staggering rate. In an ambitious study of 4,200 companies, conducted by the McKinsey Global Institute, 72% reported using them to facilitate employee communication. We have studied internal social tools in various work settings, including banking, insurance, telecommunications, e-commerce, atmospheric science, and computing. The mounting evidence is clear: These tools can promote employee collaboration and knowledge sharing across silos. They can help employees make faster decisions, develop more innovative ideas for products and services, and become more engaged in their work and their companies. Over the past two decades, organizations have sought some of these benefits through knowledge management databases but with limited success. That’s because determining who has expertise and understanding the context in which it was created are important parts of knowledge sharing. Databases do not provide that type of information and connection. Social tools do. But we have found that companies that try to “go social,” as many of them call it, often fall into four traps. In this article, we look at those traps and share recommendations for capitalizing on the promise of social tools.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=53429

  • September 2017
  • Academy of Management Discoveries

The Advocacy Trap: When Legitimacy Building Inhibits Organizational Learning

By: Zuzul, Tiona, and Amy C. Edmondson

Abstract—This paper describes a relationship between legitimacy building and learning for a new firm in a nascent industry. Through a longitudinal study of a new firm in the nascent smart city industry, we found that the firm failed to make progress on important internal initiatives, despite notable external successes, including prestigious employees, well-known partner companies, and extensive positive media attention. Exploring these concurrent developments, we discovered a surprising relationship between the firm's external successes and its internal failures. We propose that the legitimacy building that helped the new firm establish external success gave rise to cognitive and emotional internal dynamics that inhibited organizational learning. We call this dynamic the advocacy trap. By suggesting a downside to legitimacy building and identifying a novel barrier to organizational learning—rooted in cognition and emotion, and especially salient in new firms and nascent industries—our discovery opens several new avenues for research in entrepreneurship and organizational learning.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52337

Nowcasting the Local Economy: Using Yelp Data to Measure Economic Activity

By: Glaeser, Edward L., Hyunjin Kim, and Michael Luca

Abstract—Can new data sources from online platforms help to measure local economic activity? Government datasets from agencies such as the U.S. Census Bureau provide the standard measures of economic activity at the local level. However, these statistics typically appear only after multiyear lags, and the public-facing versions are aggregated to the county or ZIP code level. In contrast, crowdsourced data from online platforms such as Yelp are often contemporaneous and geographically finer than official government statistics. In this paper, we present evidence that Yelp data can complement government surveys by measuring economic activity in close to real time, at a granular level, and at almost any geographic scale. Changes in the number of businesses and restaurants reviewed on Yelp can predict changes in the number of overall establishments and restaurants in County Business Patterns (CBP). An algorithm using contemporaneous and lagged Yelp data can explain 29.2% of the residual variance after accounting for lagged CBP data, in a testing sample not used to generate the algorithm. The algorithm is more accurate for denser, wealthier, and more educated ZIP codes.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=53271

  • Harvard Business School Case 718-419

Hilti (A): Fleet Management?

This case explores the strategic decision-making process of premium power tools manufacturer Hilti in 1999, when the company was considering implementing a fleet management system in the construction industry. Fleet management would involve a shift from selling power tools to leasing them as a service. For Hilti, it represented an entirely new business model, which would substantially differentiate the company from its competitors. While fleet management had the potential to significantly improve the customer experience, Hilti was already a successful firm under its extant model and had to decide whether the restructuring of its business model was worth the risk.

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  • Harvard Business School Case 118-014

Predicting Purchasing Behavior at PriceMart

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. This case gets students to grapple with a business “ask” through a data science lens in the context of a large nationwide general retailer. Technical topics include Logistic regression, Ridge & Lasso regression, ROC curve, and picking a cutoff value to optimize a preferred expected value.

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  • Harvard Business School Case 118-011

Busbud

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. The case features the work of LP Maurice (HBS '08) as he decides to launch an online business to unify the scheduling data of a fragmented bus industry, only to find that the data he needs simply does not exist. The case follows him and his team as they take on challenges as the start-up evolves and develops. Topics include acquiring data, web-based prototyping to understand customer preferences, and customer acquisition and retention metrics (SEO & SEM).

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  • Harvard Business School Case 218-015

Closed-End Funds at Saba Capital Management

No abstract available.

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  • Harvard Business School Case 818-018

Intermountain Healthcare: Pursuing Precision Medicine

Headquartered in Salt Lake City, Intermountain Healthcare operates 23 hospitals and hundreds of clinics in Utah and Idaho and provides insurance to approximately 850,000 patients through its insurance arm, SelectHealth. In 2013, Intermountain, known for its commitment to improving health care outcomes and lowering costs by reducing treatment variation, made the surprising decision to invest significant resources in an innovative precision medicine unit, which would provide life-extending, genetically targeted therapies to late-stage cancer patients. Precision medicine was associated with treatment variation and high costs, the latter being of particular concern given that Intermountain often served as both payer and provider for its patients. But Intermountain’s management was convinced by Lincoln Nadauld, MD, PhD, who joined Intermountain’s oncology team in 2013 and spearheaded the creation of Intermountain Precision Genomics (IPG). By 2016, IPG had a cutting-edge genomic sequencing laboratory that provided sequencing services to Intermountain and non-Intermountain physicians, and IPG’s team had conducted research indicating that targeted therapies administered through IPG extended patient lifespans but increased overall costs. Now, in mid-2017, IPG is undergoing a major transition as it prepares to outsource the bulk of its genomic testing volume to Navican Genomics, a for-profit, Intermountain-owned spinoff. As Nadauld contemplates the future of IPG, he must evaluate two exciting opportunities, and students are asked to consider where Nadauld should focus IPG’s resources: should IPG partner with Intermountain’s behavioral health team to conduct joint research on the relationship between genetic markers and antidepressant effectiveness, or should IPG push for the testing of a large biorepository, which will cost $12 million but could lead to the identification of new precision medicine applications? More broadly, students will also need to consider the ways in which IPG complements or conflicts with Intermountain’s mission and culture.

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  • Harvard Business School Case 518-025

Audubon in 2017: The Turnaround

The case briefly describes the 112-year history of the organization and focuses particularly on the changes wrought by its new leader David Yarnold who was brought in by the board in 2010. Under Yarnold's leadership the organization went through two strategic plans (2012–2016 and 2016–2020) and brought about many changes. At the start of 2017, Yarnold declared his goal of making Audubon the most effective conservation network in America. What actions should Audubon take to get to that goal?

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  • Harvard Business School Case 717-480

VMware and the Public Cloud

In 2015, VMware, a pioneer in server and network virtualization and a member of parent company EMC’s “federation” of companies, had set its sights on becoming a leading public cloud provider. Two years prior, VMware first entered the public cloud market with its vCloud Air offering. In order to gain market share and compete with major cloud providers Amazon Web Services and Microsoft Azure, what strategy should VMware pursue? Should the company try to partner with an established cloud player or build out its public cloud offering through its own internal investments and acquisitions?

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  • Harvard Business School Case 717-515

VMware and the Public Cloud (B)

Supplements the (A) case.

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  • Harvard Business School Case 718-418

CyberArk: Protecting the Keys to the IT Kingdom

CyberArk was the recognized leader in the Privileged Account Management (PAM) space, a cybersecurity subsegment it had essentially created to secure organizations’ IT systems and sensitive data. Over 17 years, the Israeli company had grown to a market capitalization of over $1.6 billion, with sales exceeding $217 million and 900 global employees with a strong corporate culture. In May 2017, Udi Mokady, founder, chairman, and CEO, debated how best to drive growth. He mulled over whether he should stay the course and remain focused on providing best-of-breed PAM for enterprises, both on-premise and in the cloud, or expand into new markets. Cyber threats were on the rise, which afforded numerous growth opportunities such as entering the broader identity management space, creating new products to protect critical infrastructure, and securing the burgeoning world of the Internet of Things (IoT). This case explores the company's competitive position, the challenges of sustaining its advantages in a highly competitive and consolidating industry, and whether it should pursue organic or inorganic growth, while maintaining company culture.

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  • Harvard Business School Case 618-002

Flex Hungary: Launching Production (A)

This case examines design choices in the construction of flow lines. Flow lines are a popular way of arranging production because they are simple and inherently efficient. Equipment or workstations are arranged according to the sequence of steps in which a product is made. Each step consists of a set of tasks that individually are minimum rational work elements. These are combined to form the work assignment associated with the step. The work follows the same sequence of operations as it moves down the line, and the sequence is fixed from batch to batch. The case setting is a production site in Hungary that is starting up the production of a personal beverage maker. Should the team implement a conveyor-paced line in preference to a manual pull system? An analysis of process steps and times gives students an opportunity to debate this question.

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  • Harvard Business School Case 618-007

Fuyao Glass: Americas Sourcing Decision

In today's global economy, what are the factors that go into production location choice? This case is set in the world's second largest automotive glass producer as it expands from China into the United States. To meet a very aggressive cost target, management is faced with the alternatives of fulfilling the contract from its new Ohio factory, which can only produce above the target cost because it is still on a learning curve, or it can fulfill from its Tianjin, China, factory, which can produce below the cost target but will incur extensive shipping costs and require a far greater amount of inventory holding. This case examines a core question facing managers who want to produce physical products for world markets.

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