HBS Working KnowledgeHarvard Business School Working Knowledge offers business practitioners afirst look at cutting-edge research and thinking from more than 200 HBSfaculty.en-ushttp://hbswk.hbs.edu/http://hbswk.hbs.edu/images/site/smalllogo.gifHBS Working Knowledgehttp://hbswk.hbs.edu/11735For Business LeadersHarvard Business SchoolHBS Working Knowledge is a forum for innovation in business practice, offering readers a first look at cutting-edge thinking and the opportunity to both influence and use these concepts before they enter mainstream management practice. HBS Working Knowledgehttp://hbswk.hbs.edu/rss/6009.htmlTue, 14 Oct 2008 10:00:00 -4000Q&A with:Alvin J. SilkPublished:October 14, 2008Author:Sarah Jane GilbertIf Mad Men advertising hotshot Don Draper was operating on Madison Avenue today, he would find competition coming from more than just other ad firms.A recent study by Harvard Business School professor emeritus Alvin J. Silk and colleagues finds that more companies than previously thought are developing in-house advertising capabilities, especially in technology-oriented and creative industries. Working with Silk on the study were Sharon Horsky of Bar-Ilan University and Steven C. Michael (HBS PhDBE '93) of the University of Illinois at Urbana-Champaign.The study found that almost half of U.S. advertisers large and small operated some form of in-house advertising unit in the 1990s, a trend apparently on the increase. In this decade, Procter & Gamble, Google, and Condé Nast Media Group all introduced internal advertising units.Why the increase in vertical integration? Potential reasons include structural changes in the advertising industry such as the unbundling of agency services, and improved communication tools that make it easier and more cost efficient for firms to manage some aspect of their own advertising campaigns.Taken together, "this is an opportune time for managers to give serious consideration to the internalization of at least some advertising and marketing services," Silk says in this Q&A. Sarah Jane Gilbert: Can you explain the concept of vertical integration?Alvin Silk: Vertical integration is about a firm deciding which products and services to "make" internally as opposed to what it buys in the marketplace. A firm may integrate "forward" into the channels used to distribute its output to customers, or "backward" into the supply chain that provides inputs the firm requires to produce and/or market its output. An in-house advertising agency is a case of backward vertical integration. Advertising services may be fully integrated in the sense that an in-house agency provides full service (e.g., strategy and creative development, ad production, and media placement). Alternatively, a firm's advertising services may be partially integrated in the sense that the in-house agency provides only a limited range of services—say, ad production and media placement—and an independent or outside agency is relied on for other services—say, strategy and creative development.Q: What are the advantages and disadvantages of establishing an in-house advertising resource? A: The make or buy decision relating to advertising services is a complex one. The primary considerations involve issues of cost and control. The make or buy decision calls for a comparative analysis of two types of costs. Can an advertiser operate an in-house agency that produces a specific set of services at a lower cost than the compensation required to retain an outside agency? In addition, there are transaction costs. How do the costs of planning, adapting, and monitoring the development and implementation of an advertising campaign compare when the tasks are performed internally rather than by an independent outside agency?Ownership of an in-house agency rests with the advertiser and allows the advertiser greater control over matters such as the assignment of personnel and the scheduling and coordinating of tasks than what may be obtained when working with an independent agency that serves numerous clients. A long-standing issue is whether an in-house agency can attract and retain creative personnel as effectively as an independent agency.Q: At what point does it make sense for a firm to bring advertising services in-house? Are there cost benefits, and do they depend on size? A: Previous research has shown that advertising agency operations are subject to economies of scale, and hence the advertiser faces a major tradeoff in choosing between an in-house and an outside agency. If an advertiser "buys," the compensation paid to the outside agency includes markups on its creative, production, and media costs. When an advertiser "makes," it avoids payment of the outside agency's markups, but the in-house unit may fail to achieve minimum efficient scale, thereby suffering a cost penalty. Thus, if the firm's advertising budget is not sufficiently large to allow its in-house unit to operate at or beyond minimum efficient scale, the advertiser may sacrifice size-related economies realized by an independent agency serving numerous clients. Moreover, when negotiating compensation agreements with outside agencies, large advertisers are in a stronger bargaining position than are smaller advertisers to capture the size-related economies available to independent agencies. Consistent with this line of reasoning, our empirical studies indicate that the likelihood of a firm internalizing advertising services decreases as the size of its advertising expenditures increases. Q: How long does it take for an organization to establish a fully functioning in-house advertising agency?A: The length of time required to establish an in-house unit is not a subject that has been addressed in the literature I have seen. Obviously, it will depend on the range of services to be delivered and the nature of capabilities a firm already possesses.Q: Your research covered several different industries. Did your findings vary by industry?A: Our study covered 69 broadly defined industries. The proportion of firms with at least some in-house advertising services varied widely across industries, ranging from about a sixth to three-quarters. Two sectors in particular exhibited a higher level of internalization of advertising services than could be accounted for by other factors: technological industries (e.g., electronics, instruments) and creative industries (e.g., publishing, motion pictures). Q: Your study covered two years, 1991 and 1999. What do you think the findings would be now, a decade later?A: It has sometimes been suggested that use of in-house agencies is sensitive to the business cycle, and we chose to study 1991 and 1999 because those years bracket a full business cycle in the U.S. economy.With the passage of almost another decade, how much reliance is currently placed on in-house agencies? The Association of National Advertisers (ANA) has just released the preliminary findings from a survey on this subject conducted among members that are large national advertisers. The survey found that 42 percent of ANA member firms have established internal advertising units. Cost efficiencies and savings were reported as the major reasons for pursuing the in-house route. In line with our finding that internalization of advertising services tends to decrease as the size of a firm's advertising outlays increases, the ANA study reports that full-service in-house agencies are a rarity among their sample of member firms that tend to expend substantial amounts on advertising. Most of the in-house units performed specialized or limited functions, such as those related to the development of direct mail, online, and promotional materials. Q: What can managers learn from your research?A: First, I would hope our study will serve as reminder that the choice of make or buy with respect to an advertising agency is not a case where one size fits all. The decision should be based on a careful economic analysis. Our study provides some basic insights into when an in-house agency is likely to be efficient and when it is not.Secondly, this is an opportune time for managers to give serious consideration to the internalization of at least some advertising and marketing services. Advertisers presently face the challenge of coordinating a vast array of independent communication services and suppliers, and concerns have often been expressed about the costs and inefficiencies surrounding existing arrangements for accomplishing this. With widespread abandonment of commission-based agency compensation and the unbundling of agency services, barriers that once discouraged the establishment of in-house agencies have long since fallen away. The present environment surrounding agency-client relations is one characterized by heightened cost-consciousness and accountability. The advertising industry is currently undergoing a major transformation as it absorbs new information and communication technologies that not only offer new media for reaching customers but also bring new tools for managing advertising campaigns. These technological changes are likely to result in shifts in production and transaction cost, and thus existing patterns of advertising agency-client relations may well undergo further changes.  About the authorSarah Jane Gilbert is a Web product manager at Harvard Business School.]]>http://hbswk.hbs.edu/rss/6025.htmlFri, 10 Oct 2008 10:00:00 -4000Published:October 10, 2008Paper Released:September 2008Authors:Carliss Y. Baldwin and C. Jason Woodard Executive Summary: Product and system designers have long exploited opportunities to create families of complex artifacts by developing and recombining modular components. An especially common design pattern is associated with the concept of a platform, which Baldwin and Woodard define as a set of stable components that supports variety and evolvability in a system by constraining linkages among the other components. In this paper, the authors shed light on the relationships between platforms and the systems in which they are embedded to better understand and explain firms and industries where platforms play an important role. Key concepts include: There is a fundamental unity in the architecture of platforms.The combination of stability and variety in the architecture makes it possible to create novelty without developing a new system from scratch. Thus platform systems are evolvable.Although they display a fundamental unity at the level of architecture, platform systems vary a great deal in construction and appearance. A benefit of viewing platform architectures in a unified way is that theories and observations of seemingly disparate phenomena in diverse fields can be brought into focus as part of a coherent whole. AbstractThe central role of "platform" products and services in mediating the activities of disaggregated "clusters" or "ecosystems" of firms has been widely recognized. But platforms and the systems in which they are embedded are very diverse. In particular, platforms may exist within firms as product lines, across firms as multi-product systems, and in the form of multi-sided markets. In this paper we argue that there is a fundamental unity in the architecture of platforms. Platform architectures are modularizations of complex systems in which certain components (the platform itself) remain stable, while others (the complements) are encouraged to vary in crosssection or over time. Among the most stable elements in a platform architecture are the modular interfaces that mediate between the platform and its complements. These interfaces are even more stable than the interior core of the platform, thus control over the interfaces amounts to control over the platform and its evolution. We describe three ways of representing platform architectures: network graphs, design structure matrices and layer maps. We conclude by addressing a number of fundamental strategic questions suggested by a unified view of platforms.Paper InformationFull Working Paper Text  Working Paper Publication Date: September 2008HBS Working Paper Number: 09-034Faculty Unit: Finance  ]]>http://hbswk.hbs.edu/rss/6021.htmlThu, 09 Oct 2008 10:00:00 -4000Published:October 9, 2008Paper Released:August 2008Authors:Neeru Paharia, Karim S. Kassam, Joshua D. Greene, and Max H. Bazerman Executive Summary: When powerful people do morally questionable things, they rarely interact directly with their putative victims. Mobsters have hit men. CEOs have vice presidents, lawyers, and accountants. More specifically, the powerful are likely to carry out their intentions through the actions of other agents, with varying degrees of explicit direction and control. This working paper describes four studies that explore the effects of such "indirect agency" on moral judgment. Key concepts include: Results of these studies suggest that heightened awareness of people's sometimes dubious motivations for acting indirectly, and the organizational structures that facilitate them, may be a useful safeguard against the abuse of power.Acting indirectly through another can hide the fact that one has caused harm, hide the fact that one knowingly chose to cause harm, and hide the extent of one's control over the harmful outcome. Causing harm indirectly through another can protect harm-doers, and thus harm society in a more subtle and insidious way. This is important to know, given that many of the greatest crimes against society are perpetrated by powerful people who carry out their intentions through others. AbstractWhen powerful people cause harm, they often do so indirectly through other people. Are harmful actions carried out through others evaluated less negatively than harmful actions carried out directly? Four experiments examine the moral psychology of indirect agency. Experiment 1 reveals effects of indirect agency under conditions favoring intuitive judgment, but not reflective judgment, using a joint/separate evaluation paradigm. Experiment 2 demonstrates that effects of indirect agency cannot be explained by perceived lack of foreknowledge or control on the part of the primary agent. Experiment 3 indicates that reflective moral judgment is sensitive to indirect agency, but only to the extent that indirectness signals reduced foreknowledge and/or control. Experiment 4 indicates that effects of indirect agency result from a failure to automatically consider the potentially dubious motives of agents who cause harm indirectly.Paper InformationFull Working Paper Text Working Paper Publication Date: August 2008HBS Working Paper Number: 09-012Faculty Unit: Negotiation, Organizations & Markets ]]>http://hbswk.hbs.edu/rss/5938.htmlWed, 08 Oct 2008 10:00:00 -4000Published:October 8, 2008Author:John P. KotterThe problem with using crises to reduce complacency and create urgency is that the tactic is a potential diamond sitting on a rock surrounded by quicksand and very nasty beasts. Any naiveté about the downside risks can cause disaster.Big Mistake Number 1: Assuming that crises inevitably will create the sense of urgency needed to perform better.An example. At a major European retailer, margins were shrinking year after year because fashionable boutiques were taking its top-of-the-line business, and discounters were taking away its low-end business. Then the European edition of the Wall Street Journal published an explosive article spelling out many of the firm's problems. The CEO had two weeks' warning, but instead of alerting others or working to kill the story, he deliberately chose to do nothing. Not only did he not warn others, except one close confidant, but he also did little to analyze in advance exactly what would happen the day the article came out and what precisely he should do to channel fear, anger, and confusion into a determination to act fast and succeed.The day came. A full-blown crisis was created. The CEO waited for a great wind to start pushing his organization off its complacent platform and into a good direction. But it didn't happen. Instead of mobilizing people into action, the crisis led many managers into making fewer decisions because they didn't want to be accused of mistakes with the press and public watching. Many other managers were genuinely afraid that is they rushed into actions their decisions might accidentally create harm. So they held back just at a time when the CEO most needed their help to get the organization moving swiftly into a better future. […]Without needed planning and action to leverage the crisis, the situation grew worse, not better.Big Mistake Number 2: Going over the line with a strategy that creates an angry backlash because people feel manipulated.No one wants to feel manipulated. If people sense that someone has created a crisis that deliberately puts them in harm's way, especially if it is not strongly connected to real business problems, they may suspect sabotage or lunacy, both of which can create anger and not a steely determination to act fast and win. The crisis-creating strategy not only fails but makes matters worse. Because his managers and employees would not change to meet new market demands, the head of the largest division of a Midwestern manufacturing company reluctantly drew the conclusion that his only alternative was to engineer a crisis. […]But energy within his organization did not emerge as a strong sense of urgency to act. New energy formed more as anger looking for someone to blame for the crisis. Suddenly, a rumor started that the plant manager had purposefully taken steps in the prior year in order to create the severe problems the company faced. Any energy to confront the facts and deal with the real business problems was redirected at the plant manager.Big Mistake Number 3: Passively sitting and waiting for a crisis (which many never come). A major problem with passive strategies is that nature may not cooperate by providing the right amount of lightning in the right place at the right time. A passive, hopeful, wait-and-see strategy fails. The CEO at an electric utility was actually looking forward to deregulation as a means of unfreezing a tradition-bound monopoly that was not adequately preparing for a more competitive future. But deregulation came slower than he anticipated and with fewer new freedoms. […] No crisis was thrust upon the firm. The enterprise continued to make money even as it turned slowly to lose market share in a post-monopoly world. The positive net income helped greatly in supporting complacency. In frustration, his change agents waited and waited for a powerful legislation that they knew must happen in the current year. But it never did, and the crisis never came.Big Mistake Number 4: Underestimating what the people who would avoid crises at all costs correctly appreciate: that crisis can bring disaster.Example. Using a technology recently made available because of ever-shrinking microchips, a new competitor took away dozens of a firm's key customers. The crisis could have been anticipated. But because the management believed that only an unexpected burning platform could help push a complacent organization out of its comfort zone, it didn't pay attention to the danger signs. Revenues collapsed, losses mounted, the stock tanked, people were laid off, and some good employees jumped ship. The platform burned for all but the most complacent. Yet the economic collapse meant there was little or no funding left for new plant equipment, a new IT system, and a new R&D effort, all of which were required if the firm was to leap into the future. Even the few employees who were mobilized into action found that the firm's needs were overwhelming. Morale sank. Losses continued to grow. Then the firm was bought by someone at a bargain price, someone who sliced and diced the company out of existence. In summary, a burning platform, yes; a changed organization equipped to meet the needs of the future, not even close.Of all the risks associated with crises, this last one is obviously the biggest. Instead of creating a sense of urgency, you end up out of business. You don't find this happening often, because people sense the danger and work very hard to avoid it. But crises sometimes do cripple or destroy organizations. Here is the strongest demonstration yet that crises, though they can be highly useful, are not necessarily your friend when urgency is needed.The bottom lineDon't be naïve. Management control systems and damage control experts serve a critical purpose. But don't let that blind you to an increasingly important reality. Controls can support complacency in an era when complacency can be deadly. Handled properly—and we know the rules for proper handling-a crisis can offer an opportunity to increase needed urgency, an opportunity that cannot be disregarded.Best evidence available today tells us that crises can be used to create true urgency if these principles are followed:Always think of crises as potential opportunities, and not only dreadful problems that automatically must be delegated to the damage control specialists. A crisis can be your friend.Never forget that crises do not automatically reduce complacency. If not monitored and handled well, burning platforms can be disastrous, leading to fear, anger, blame, and the energetic yet dysfunctional behavior associated with false urgency.To use a crisis to reduce complacency, make sure it is visible, unambiguous, related to real business problems, and significant enough that it cannot be solved with small, simple actions. Fight the impulse to minimize or hide bad news.To use a crisis to reduce complacency, be exceptionally proactive in assessing how people will react, in developing specific plans for action, and in implementing the plans swiftly.Plans and actions should always focus on others' hearts as much or more than their minds. Behaving with passion, conviction, optimism, urgency, and a steely determination will trump an analytically brilliant memo every time.If urgency is low, never patiently wait for a crisis (which may never come) to solve your problems. Bring the outside in. Act with urgency every day.If you are considering creating an urgency-raising crisis, take great care both because of the danger of losing control and because if people see you as manipulative and putting them at risk, they will (quite reasonably) react very badly.If you are at a middle or low level in an organization and see how a crisis can be used as an opportunity, identify and then work with an open-minded and approachable person in a more powerful position who can take the lead. Certainly we need to be prudent. But in a more rapidly changing world, finding opportunities in crises probably reduces your overall risk. To learn more:Watch a video of John Kotter discussing urgency on his blog. Excerpted with the permission of Harvard Business School Press, from A Sense of Urgency by John P. Kotter. Copyright 2008 John P. Kotter. All rights reserved. Purchase this book.]]>http://hbswk.hbs.edu/rss/6046.htmlTue, 07 Oct 2008 10:00:00 -4000Ever try to dodge a difficult question by answering the question you wish you had been asked? You're not alone, nor are you necessarily a candidate for political office. By the same token, however, do you honestly recognize when someone is giving you the slip? Todd Rogers and HBS professor Michael I. Norton, who conducted two experiments into the behavior of listeners subjected to this kind of dodge, found that oftentimes "listeners' conversational blindness allows speakers to avoid the negative interpersonal costs of answering questions they would rather not answer, while being perceived as having answered the questions they were asked. Thus conversational blindness allows politicians-and likely people in everyday discourse-to seamlessly dodge questions without detection, and without penalty." TV networks do viewers a favor, then, when during debates the question asked appears on the screen all while it is being "answered." A working paper describing the research may be downloaded [PDF].Also new this week, a study of industry trends in the U.S. advertising and marketing services industry, and three cases on Gazprom, the world's largest natural gas producer.— Martha LagaceWorking PapersSpanning the Institutional Abyss: The Intergovernmental Network and the Governance of Foreign Direct Investment Authors:Juan Alcacer and Paul Ingram Abstract Global economic transactions such as foreign direct investment must extend over an institutional abyss between the jurisdiction, and therefore protection, of the states involved. Intergovernmental organizations (IGOs), whose members are states, represent an important attempt to span this abyss. IGOs are mandated variously to smooth economic transactions, facilitate global cooperation, and promote cultural contact and awareness. We use a network approach to demonstrate that the connections between two countries through joint-membership in the same IGOs are associated with a large positive influence on the foreign direct investment that flows between them. Moreover, we show that this effect occurs not only in the case of IGOs that focus on economic issues, but also on those with social and cultural mandates. This demonstrates that relational governance is important and feasible in the global context and for the most risky transactions. Finally we examine the interdependence between the IGO network and the domestic institutions of states. The interdependence between these global and domestic institutional forms is complex, with target-country democracy being a substitute for economic IGOs but a complement for social and cultural IGOs. Download the paper: http://www.hbs.edu/research/pdf/09-045.pdfPhenomenological Assumptions and Knowledge Dissemination within Organizational Studies Authors:Corinne Bendersky and Kathleen L. McGinn Abstract Phenomenological assumptions-assumptions about the fundamental qualities of the phenomenon being studied-affect the dissemination of knowledge from subfields to the broader field of study. Microprocess research in organizational studies reveals implicit phenomenological assumptions that vary in the extent to which microprocesses are treated as parts of larger systems. We suggest that phenomenological assumptions of recursive interactions between the phenomenon and the environment will make the relevance of microprocess research findings to broader organizational questions easier to discern and therefore more likely to disseminate to the larger field of organizational research. We empirically assess this assertion by analyzing studies of negotiation published in top peer-reviewed management, psychology, sociology, and industrial relations journals from 1990 to 2005. Our findings illuminate a continuum of open systems to closed systems phenomenological assumptions revealed in this microprocess research. Analysis of the citation rates of the articles in our data set by non-negotiation organizational research reveals that more open systems assumptions increase the likelihood that a negotiation article will be cited in organizational studies, after controlling for other, previously identified effects on citation rates. Our findings suggest that subfields can increase the impact they have on the broader intellectual discourse of their field by situating their phenomena in rich contexts that illuminate the connections between their findings and questions of interest to the broader field. Download the paper: http://www.hbs.edu/research/pdf/09-043.pdfMedia versus Special Interests Authors:Alexander Dyck, David Moss, and Luigi Zingales Abstract We argue that profit-maximizing media helps overcome the problem of "rational ignorance" highlighted by Downs (1957) and in so doing makes elected representatives more sensitive to the interests of general voters. By collecting news and combining it with entertainment, media are able to inform passive voters on politically relevant issues. To show the impact this information has on legislative outcomes, we document the effect "muckraking" magazines had on the voting patterns of U.S. representatives and senators in the early part of the 20th century. We also show under what conditions profit-maximizing media will cater to general (less affluent) voters in their coverage, providing a counterbalance to special interests. Download the paper from SSRN ($5): http://papers.nber.org/papers/w14360Stable Many-to-Many Matchings with Contracts Authors:Bettina-Elisabeth Klaus and Markus Walzl Abstract We consider several notions of setwise stability for many-to-many matching markets with contracts and provide an analysis of the relations between the resulting sets of stable allocations for general, substitutable, and strongly substitutable preferences. Apart from obtaining "set inclusion results" on all three domains, we introduce weak setwise stability as a new stability concept and prove that for substitutable preferences the set of pairwise stable matchings is nonempty and coincides with the set of weakly setwise stable matchings. For strongly substitutable preferences the set of pairwise stable matchings coincides with the set of setwise stable matchings. Download the paper: http://www.hbs.edu/research/pdf/09-046.pdfI'll Have the Ice Cream Soon and the Vegetables Later: A Study of Online Grocery Purchases and Order Lead Time (revised) Authors:Katherine L. Milkman, Todd Rogers, and Max H. Bazerman Abstract How do decisions made for tomorrow or two days in the future differ from decisions made for several days in the future? We use data from an online grocer to address this question. In general, we find that as the delay between order completion and delivery increases, grocery customers spend less, order a higher percentage of "should" items (e.g., vegetables), and order a lower percentage of "want" items (e.g., ice cream), controlling for customer fixed effects. These findings are all consistent with theories suggesting that people's should selves exert more influence over their choices the further in the future outcomes will be experienced. However, orders placed for delivery tomorrow versus two days in the future do not show this want/should pattern, and we discuss a potential explanation. Download the paper: http://www.hbs.edu/research/pdf/07-078.pdf Conversational Blindness: Answering the Wrong Question the Right Way Authors:Todd Rogers and Michael I. Norton Abstract What happens when people try to "dodge" a question they would rather not answer by answering a different question? Two experiments demonstrated conversational blindness—listeners' surprising failure to notice such dodges—and explored the interpersonal consequences of this phenomenon. Listeners viewed successful question-dodgers as positively as speakers who actually answered the question they are asked but were not blind to all efforts to dodge: They both noticed—and punished—particularly egregious attempts (Study 1). More troublingly, listeners preferred speakers who answered the wrong question well over those who answered the right question poorly (Study 2). Download the paper: http://www.hbs.edu/research/pdf/09-048.pdfConcentration Levels in the U.S. Advertising and Marketing Services Industry: Myth vs. Reality Authors:Alvin J. Silk and Charles King III Abstract This paper analyzes changes in concentration levels in the U.S. Advertising and Marketing Services (A&MS) industry using publicly released data that have been largely ignored in past discussions of the industrial organization of this industry, namely those available from the U.S. Census Bureau's quinquennial Economic Census and the Service Annual Survey. We define the A&MS industry in terms of nine sectors, each of which is represented by a separate 5-digit NAICS category. In so doing, we have sought to redress some of the measurement problems surrounding estimates found in the existing literature. Our main findings are threefold.First, in the case of the core and largest sector, Advertising Agencies, firm-level concentration as measured by Herfindahl-Hirschman Index (HHI) increased slightly but remained relatively low from 1977-2002. All of the HHI estimates readily satisfied the standard widely used to characterize an industry as "unconcentrated." We find mixed support for the hypotheses that the ranks of mid-sized agencies were depleted by ongoing waves of mergers and acquisitions and resulted in a polarized size structure. The size distributions of agency revenue have become more polarized in the sense that over time they appear more skewed, more dispersed, and exhibit greater inequality. The share of total receipts realized by small agencies fell while that of large agencies rose. However, the position of mid-sized agencies appears to have changed little over the period 1977-2002, as measured by the shares of agencies and receipts they represent.Second, concentration levels in 1997 and 2002 varied across the nine sectors comprising the A&MS industry, but all were within the range generally considered as indicative of a competitive industry.Third, we developed concentration ratios at the level of holding companies (HCs) and find that the four largest HCs captured between a fifth and a quarter of total revenue from the A&MS industry, a share that remained quite stable over the period 2002-2006. These estimates are lower by an order of magnitude than estimates often cited in the trade press. Reasons for the discrepancy are discussed. Download the paper: http://www.hbs.edu/research/pdf/09-044.pdfTaste Heterogeneity, IIA, and the Similarity Critique Authors:Thomas J. Steenburgh and Andrew Ainslie Abstract The purpose of this paper is to show that allowing for taste heterogeneity does not address the similarity critique of discrete-choice models. Although IIA may technically be broken in aggregate, the mixed logit model allows neither a given individual nor the population as a whole to behave with perfect substitution when facing perfect substitutes. Thus, the mixed logit model implies that individuals behave inconsistently across choice sets. Estimating the mixed logit on data in which individuals do behave consistently can result in biased parameter estimates, with the individuals' tastes for desirable attributes being systemically undervalued. Download the paper: http://www.hbs.edu/research/pdf/09-049.pdf Cases & Course MaterialsAbsolute Return for Kids Harvard Business School Case 309-036 Absolute Return for Kids [ARK] is a charity with strong financial support—what are the constraints on its growth and impact? ARK seeks to transform the lives of children who are victims of abuse, disability, illness, and poverty. As one of the 50 largest fundraising charities in the United Kingdom, the organization's trustees wrestle with how to meet the needs of this vast and most vulnerable population through program expansion and delivery in Eastern Europe, South Africa, and the United Kingdom. How can the organization replicate its existing successful programs faster, both within and existing new countries? How can it best identify new areas into which ARK should expand over the near term and further down the road—and recognize the ones that would overstretch ARK's organizational capacity and risk failing to maintain the highest quality of delivery? Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=309036 Allston: Brand vs. Architecture Harvard Business School Case 208-079 Harvard President Lawrence Summers had presided over the final interviews of world-renowned architects being considered for the science complex planned for Harvard's expanded campus in Allston. The selection process had absorbed nine months in 2005 and amplified the long-standing debate about Harvard architecture. How will the proposed new complex be received be faculty, students, alumni, neighbors, and the public? Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=208079 Crossing Borders: Notes on a Middle Eastern Journey through Africa Harvard Business School Case 708-477 This is the story of MTC, a Kuwaiti telecom company that has grown from a sleepy, state monopoly to become one of the fastest growing telecom companies in the world, with the largest regional footprint across the Middle East and Africa. The CEO of the company, Dr. Saad Al Barrak, had been successful in executing an aggressive growth plan that found its crown jewel in the acquisition of Celtel, one of the largest telecom companies in sub-Saharan Africa. However, this acquisition threw MTC into a dynamic new context and marked the beginning of a very different phase. If Dr. Saad was going to lead MTC into the topmost ranks of global telecom, his team would have to successfully grapple with all the growing pains of managing across borders, brand names, and cultures. All against the backdrop of an unpredictable African market with huge growth potential and rapidly increasing competition.t Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=708477 Databank in Africa Harvard Business School Case 708-478 This case tackles issues of regional strategy and strategic institutional arbitrage. Databank is a financial services firm designing its regional strategy for Africa and seeking to benefit from institutional arbitrage. Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=708478 Gazprom (A): Energy and Strategy in Russian History Harvard Business School Case 709-008 Critics have accused Gazprom, the world's largest natural gas producer, of eschewing market principles in favor of the foreign policy priorities of the Russian government, ever since the energy giant cut off the supply to Ukraine in January of 2006. The purported motive for the decision, however, seems to indicate the opposite: the company claimed that it had no other choice because the sides failed to conclude a contract on the terms of future trade. The case takes a look back in history for clues that may resolve this paradox. It highlights how politics shaped the economics of natural gas trade in the former Soviet Union and Europe since the late 1960s until the end of the 1990s; sketches the story of the creation of Gazprom by the first post-Soviet government of Russia; and describes how the erection of new sovereign borders in the wake of the dissolution of the Soviet Union, coupled with political and economic transition, created major problems in the gas trade between the former Soviet republics, emerging with the greatest intensity in the Russian-Ukrainian relations. Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=709008 Gazprom (B): Energy and Strategy in a New Era Harvard Business School Case Supplement 709-009 President Putin publicly stated that Gazprom, the largest natural gas producer in the world, was a powerful political lever of the Russian state in the world and a keystone in the foundation of the country's energy security. Thus the top leadership of Russia has charted the course of the company's future away from the seemingly imminent dismemberment, privatization, and, by implication, de-monopolization toward a challenging combination of strengthened state control, professional, transparent management, and a major expansion. The case explores how in 2000-2008 Gazprom's management has pursued the strategy defined by the politicians. Gazprom's impressive expansion strategy envisioned diversification of markets, products, transportation routes, and modes of delivery. The challenges were equally formidable: massive investment needs, a possibility of a production shortfall, and a chronic problem with the transit state of Ukraine, to name a few. In fact, Gazprom's ambitiousness fully reflected the ambitiousness of Russia as a whole, characteristic of the Putin era. Purchase this supplement: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=709009 Gazprom (C): The Ukrainian Crisis and Its Aftermath Harvard Business School Supplement 709-010 The case describes the resolution to the January 2006 gas crisis, precipitated by the decision of Gazprom, the largest natural gas producer in the world, to cut off gas supply to Ukraine because of disagreement on the terms of future trade. The case also narrates the events that have followed: the adoption by Gazprom of a comprehensive policy to renegotiate prices with the rest of the former Soviet states; the erratic relationship with Ukraine, dependent on the internal political configuration in the latter at any given time; and a persistence of Gazprom's negative image in the world. Purchase this supplement: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=709010 (PRODUCT) RED (A) Harvard Business School Case 509-013 Describes the launch and initial results of the (PRODUCT) RED campaign, a social marketing initiative conceived by U2's Bono and Bobby Shriver to combat AIDS in sub-Saharan Africa. The company licensed the (RED) brand to partner companies, which initially included Gap, Apple, Motorola, Armani, and American Express. The business model was structured to benefit partner companies by increasing consumer purchases—of (RED)-branded products such as red iPods and phones—while also resulting in increased donations to the Global Fund. Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=509013 (PRODUCT) RED (B) Harvard Business School Supplement 509-014 Updates the (PRODUCT) RED (A) case through early 2008, including announcements of new partner relationships (with Hallmark, Microsoft, and Dell) as well as new communications initiatives. Purchase this supplement: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=509014 Supergrid Harvard Business School Case 707-016 Supergrid is a mammoth wind-power development scheme for Europe, recently proposed by Airtricity. This firm, founded in 1997, is a fast-growing power-development company focused on wind. Already having built about 600 megawatts of wind turbines in Scotland and Ireland, Airtricity has now expanded to the United States. But its "Supergrid" proposal, to build offshore wind turbines with capacity of 30,000 megawatts of power, would change the face of European energy networks, use new technology, and help several European countries meet their Kyoto targets for reducing CO2. The issues are whether a small company like Airtricity has the human and capital resources to pull this off, and whether the U.K., Germany, the Netherlands, and the EU can be made to cooperate on such a project. Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=707016 System on a Chip 2008: Ardentec Corporation Harvard Business School Case 609-026 Ardentec Corporation is a specialist in "wafer probing," a highly specialized niche sandwiched between the "front-end" and the "back-end" of semiconductor manufacturing. Because the semiconductor industry uses modular processes and has standard containers for the interchange of work-in-progress, it has evolved to a highly horizontal structure where specialists like Ardentec can carve out unique market opportunities that are less attractive to integrated manufacturers. The company has grown rapidly, but as it starts to occupy a significant percentage of the total available market, its founders are faced with the challenge of how to maintain growth. Do they vertically integrate more into the back-end, or should they try to do acquisitions in adjacent markets? The case is intended to be used in conjunction with the Technical Note, "Horizontal Specialization and Modularity in the Semiconductor Industry" (608-001). Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=609026 Thoma Bravo—Citect Corporation Take-Private Harvard Business School Case 209-022 In 2006, Citect Corporation, a publicly traded Australian software company, was the target of a takeover battle between a financial sponsor and a strategic buyer. Thoma Bravo, the U.S.-based private equity firm, had to decide on its acquisition strategy in the face of competition from Schneider Electric, a large French multinational. The case allows for a thorough analysis of buyer types (financial vs. strategic), deal strategy, and valuation. Among other topics covered in the case are the importance of due diligence, the potential for value creation by private equity firms through operational improvements, the use of footholds in deal strategy, and the challenges of cross-border acquisitions. Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=209022 Ujjivan: A Microfinance Institution at a Crossroads (A) Harvard Business School Case 108-057 Samit Ghosh, the CEO and founder of Ujjivan, a major microfinance provider in Bangalore, wants to grow his business rapidly and become financially sustainable, but he's struggling with staff fraud, high costs, and how to stay true to Ujjivan's mission of poverty alleviation, while simultaneously reaching out to higher-income customers. The case explores how Ujjivan can grow, looking at such issues as new technology, diversifying product offerings, and how to hire the best staff. Purchase this case: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=108057 Ujjivan: A Microfinance Institution at a Crossroads (B) Harvard Business School Supplement 108-083 Case (B) of "Ujjivan: A Microfinance Institution at a Crossroads" addresses some of the actions Ujjivan, a microfinance provider in Bangalore, has taken with regard to issues raised in the (A) case, particularly regarding fraud and establishing financial sustainability. For example, the CEO of Ujjivan, Samit Ghosh, decides to strengthen the Audit Team and implements new loan products. Purchase this supplement: http://harvardbusinessonline.hbsp.harvard.edu/ b01/en/common/item_detail.jhtml?id=108083 PublicationsWhere Does It Go? Spending by the Financially Constrained Authors:Shawn A. Cole, Peter Tufano, and John Thompson Publication:Chap. 2 in Borrowing to Live: Consumer and Mortgage Credit Revisited, 65-91. Washington: Brookings Institution Press, 2008 AbstractIn this paper, we analyze the spending decisions of over 1.5 million Americans who vary in their degree of revealed credit constraints. Specifically, we analyze how these Americans spend their income tax refunds, using transaction-level data from a stored-value card product. Cardholders may choose among several tax settlement and loan options, effectively receiving cash as much as 90 days earlier than would have been possible without a settlement product. Those selecting earlier settlement options pay higher fees and interest, therefore revealing the level of credit constraints or impatience. We find that more credit constrained or impatient individuals spend their monies more quickly. The mix of cash and merchant transactions is similar between more and less constrained groups. Finally, the primary merchant uses of refunds are to pay for necessities (grocery stores, gas stations, etc.), and the fraction of the refund spending devoted to these necessities is higher for those with greater revealed credit constraints.]]>http://hbswk.hbs.edu/rss/6043.htmlTue, 07 Oct 2008 10:00:00 -4000Published:October 7, 2008Paper Released:September 2008Author:Benjamin G. Edelman Executive Summary: Online advertising remains a "Wild West" where users are faced with ads they ought not believe and where firms overpay for ads without getting the results they were promised. But it doesn't have to be this way. Enforcement by public agencies is starting to remind advertisers and ad networks that long-standing consumer protection rules still apply online. And as advertisers become more sophisticated, they're less likely to tolerate opaque charges for services they can't confirm they received. During the past five years, Edelman has uncovered hundreds of online advertising scams defrauding thousands of users, including all the Web's top merchants. This chapter summarizes some of what he has found and what users and advertisers can do to protect themselves. Key concepts include: Advertising security gaps are widespread. Many companies don't view advertising fraud as a priority. Marketers often write off advertising fraud as an unavoidable cost of doing business. But effective fraud reduction can transform "unavoidable" losses into a bigger bottom-line and a real competitive advantage.Some advertisers compensate ad buyers in ways that discourage ad buyers from rooting out fraud. Furthermore, ad networks operate under mixed incentives in their supervision of partners, affiliates, and syndicators. Often, a marketer's partners and even its own staff have strong incentives to ignore problems rather than to take effective action. AbstractRead the news of recent computer security guffaws, and it's striking how many problems stem from online advertising. Advertising is the bedrock of web sites that are provided without charge to end users, so advertising is everywhere. But advertising security gaps are equally widespread: from "malvertisement" banner ads pushing rogue anti-spyware software, to click fraud, to spyware and adware, the security lapses of online advertising are striking. During the past five years, I have uncovered hundreds of online advertising scams defrauding thousands of users—not to mention all the web's top merchants. This chapter summarizes some of what I've found—and what users and advertisers can do to protect themselves.Paper InformationFull Working Paper Text Working Paper Publication Date: September 2008HBS Working Paper Number: 09-039Faculty Unit: Negotiation, Organizations & Markets ]]>http://hbswk.hbs.edu/rss/5993.htmlMon, 06 Oct 2008 10:00:00 -4000Q&A with:William A. SahlmanPublished:October 6, 2008Author:Sean SilverthorneSean Silverthorne: "How to Write a Great Business Plan" has been one of the most downloaded articles on Harvard Business Publishing since you wrote it in 1997. Why do you think you hit a nerve? Bill Sahlman: Writing a business plan is a seminal moment in the life of a new venture. Doing so entails committing to paper a vision of the factors that will affect the success or failure of the enterprise. People take the exercise very seriously and get emotionally invested in what they produce.In that context, the article was written to give insights into how to think about the role of a business plan and its relation to new venture formation. I tried to explain that a business plan can't be a tightly crafted prediction of the future but rather a depiction of how events might unfold and a road map for change. I emphasized the notion that successful entrepreneurs constantly seek the right mixture of people, opportunity, context, and deal. They anticipate what can go wrong, what can go right, and they try to balance risk and reward.Over the years, I have received many e-mails from folks trying to craft a business plan. They want feedback. Actually, they really want me to say that they are on the right track. I explain that I would need to get to know them and their opportunity much better than what is possible in an e-mail and that the written document is not as important as the people writing it. It's not science—it's art and craft.Q: In the decade since the original article came out, business conditions have changed. If you were writing this piece today, would you change it much?A: I don't think the world has changed materially. Successful ventures still have competent people pursuing sensible opportunities, using resources that help, in a favorable context. Yes, the context is very challenging today. But challenges create opportunities. If gaining access to capital is hard, sometimes that means there will be fewer competitors. This period is almost the antithesis of the Internet bubble when everyone could raise money and start a company regardless of how lamebrained the idea. Also, we have difficult factor markets like energy, but that simply means that there are great opportunities for people with ideas for alternative energy. Were I rewriting the article today, I might emphasize the importance of controlling your destiny by being conservative about access to capital. Many great ventures in the Internet era (pre-1999) ended up failing because they assumed they would have continued access to cheap capital. Many of those businesses failed, though the underlying idea was sensible. Similarly, we have seen a period when capital markets got ugly, which has a negative effect on all ventures, sensible and nonsensical.I would also reinforce the idea that entrepreneurship is critical around the world. We are confronted with many crises from health care to the environment to global poverty. Solutions are likely to come from talented private sector and social entrepreneurs.Q: You wrote in the original article that most business plans "waste too much ink on numbers and devote too little to the information that really matters to intelligent investors." Still true today? What really matters to investors?A: When there is great uncertainty in the market, investors become quite risk averse. They will only back proven entrepreneurs with truly compelling ideas. People make the numbers, not conversely. So, I still think the people making the forecasts are more important than the numbers themselves.Q: More and more entrepreneurial ventures are "born global": They seek to address a global market and attract funding from global investors. Should a business plan be tailored in some way for a global audience?A: We live in a world of democratized access to ideas, human capital, and money. There are fabulous global ventures being started in every corner of the globe. These ventures can raise money locally or globally. They can disperse talent in many countries. Take a company like Skype. When I visited Skype several years ago, it had 125 employees from 23 countries. The development team was in Estonia, and its headquarters in Europe. Skype had raised seed capital in Europe and in the United States. That's the new model.Q: On the technology front, software applications such as Microsoft Word, Excel, and PowerPoint have added many charting, graphing, and visualizing capabilities. Some business plans are even written as Web pages. Should entrepreneurs avail themselves of these tools for business plans, or do they clutter the message too much?A: On the first floor of the Rock Center at HBS there is a copy of the original business plan that Arthur Rock wrote for Intel some 40 years ago. It's only a few pages long, but it describes an outstanding team pursuing a new technology. I have seen compelling business plans in the form of a few PowerPoint slides, a couple of scribbled pages, and a brief video. What matters is having all the required ingredients (or a road map for getting them), not the exact form of communication.Q: If you were to update your "Glossary of Business Plan Terms" and what they really mean ("We seek a value-added investor" really means "We are looking for a passive, dumb-as-rocks investor"), what current terms would you include?A: The glossary holds today. I think entrepreneurs, investors, and employees need to be suitably skeptical about what they read in business plans. I have read perhaps 5,000 plans and have only seen three companies really meet their plan. That sounds like a pattern to me. If anyone makes a bet based on the company doing exactly as written, he or she will be sadly disappointed. At the same time, every player has to be somewhat optimistic about the possibility of overcoming inevitable setbacks. I think of ventures as roller coasters, not rocket ships. Q: Any general advice to entrepreneurs seeking funding in the uncertain capital markets of today?A: The best money comes from customers, not external investors. I think entrepreneurs need ideas that are so compelling they can get early money from customers. I also believe that great teams with great ideas can continue to access capital on quite attractive terms from outstanding investors. If the short term looks unsettled, that often means that focusing on the long term has a big potential payoff. About the authorSean Silverthorne is editor of HBS Working Knowledge.]]> |
|
