HBS Working Papers Collection
2003 - 2004
The Accidental Entrepreneur: The Emergent and Collective Process of User Entrepreneurship (04/04)
Andrew S. Groves Swimming Across: A Memoir in Historical Context (04/04)
Bridging over Troubled Waters (10/03)
Can Individual Investors Beat the Market? (10/03)
Claiming Authority: Negotiating Challenges for Women Leaders (04/04)
Complexity, Networks and Knowledge Flow (10/03)
The Consumer Psychology of Mail-In Rebates: A Model of Anchoring and Adjustment (03/04)
Contextualizing Ties among Teammates: A Multi-Level Exploration (10/03)
Currency Returns, Intrinsic Value, and Institutional Investor Flows (01/04)
Design Rules: Volume 1, The Power of Modularity: Preface to the Japanese Edition (09/03)
Downsizing Price Increases: A Greater Sensitivity to Price than Quantity in Consumer Markets (03/04)
Dynamic Mixed Duopoly: A Model Motivated by Linux Vs. Windows (09/03)
The Dynamics of Silencing Conflict (10/03)
The Economics of Agility in Software Development (05/04)
Equity Style Returns and Institutional Investor Flows (02/04)
Evolution Interrupted: The European Automobile Industry, 1886-1975 (09/03)
Evolutionary Theory Revisited: Cognition, Hierarchy, and Capabilities (10/03)
The Exploratory Processes of Entrepreneurial Firms: The Role of Purposeful Experimentation (12/03)
A Field Study of Group Diversity, Participation in Diversity Education Programs, and Performance (03/04)
Financial Intermediation as a Beliefs-Bridge between Optimists and Pessimists (10/03)
From Rents to Risks: France's New Innovation Policy (10/03)
Geographically-Colocated Subgroups in Globally Dispersed Teams: A Test of the Faultline Hypothesis * (08/03)
Improving Corporate Governance with the Balanced Scorecard * (01/04)
Incentives Versus Synergies in Markets for Talent (01/04)
Inter-Firm Modularity and the Implications for Product Development (01/04)
International Capital Flows when Investors have Local Information (10/03)
Judging Fund Managers by the Company they Keep (10/03)
Learning From Diversity: The Effects of Learning on Performance in Racially Diverse Teams (10/03)
Managing the Boundary of an Open Project (10/03)
Methodological Fit in Organizational Field Research (5/04, revised 1/05)
Modularity in the Design of Complex Engineering Systems (05/04)
Multinationals and Linkages: An Empirical Investigation (02/04)
Normal Acts of Irrational Trust, Motivated Attributions, and the Trust Development Process (09/03)
Overchoice: The Effect of Assortment Type on Brand Choice (03/04)
The Presentation of Self in the Information Age * (05/04)
The Pricing and Profitability of Modular Clusters (09/03)
Regulation and Reaction: The Other Side of Free Banking in Antebellum New York (04/04)
Risk Management, Capital Budgeting and Capital Structure Policy for Insurers and Reinsurers (01/04)
The Risk Tolerance of International Investors (01/04)
Small Worlds and Regional Innovation (10/04)
Social Enterprise Series No. 27: Nonprofit Geographic Expansion: Branches, Affiliates, or Both? (09/03)
Social Enterprise Series No. 29: HIV/AIDS and Business in Africa and Asia: A Guide to Partnerships (02/04)
Speed, Search and the Failure of Simple Contingency (10/03)
Strategic Initiatives: Changing the Firm’s DNA (05/04)
Thinking about Technology: Applying a Cognitive Lens to Technical Change (01/04)
Time-Driven Activity-Based Costing * (01/04)
Transitions through Out-Of-Keeping Acts (04/04)
Which Types of Analyst Firms Make More Optimistic Forecasts? (08/03)
Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation (04/04)
The Accidental Entrepreneur: The Emergent and Collective Process of User Entrepreneurship
No. 04-054
Sonali K. Shah and Mary Tripsas
Entrepreneurial Management
April 2004
(Revised 10/07; previously titled: When Do User-Innovators Start Firms? Towards a Theory of User Entrepreneurship)
We develop a process model of how users, an understudied source of entrepreneurship, create, evaluate, share, and commercialize their ideas. We compare and contrast our model to the classic model of the entrepreneurial process, highlighting the emergent and collective nature of the user's entrepreneurial process. Users are often "accidental" entrepreneurs who happen upon an idea through their own use and then share it with others; more specifically, the development of an idea and subsequent experimentation, adaptation, and preliminary adoption often occur before that idea is formally evaluated as the basis of a commercial venture. Users also tend to engage in collective creative activity prior to firm formation - often within the social context provided by user communities - that results in the improvement of ideas. Finally, we provide detailed data on the prevalence of user entrepreneurship in the juvenile products industry.
43 pages
Andrew S. Groves Swimming Across: A Memoir in Historical Context
No. 04-050
Richard S. Tedlow
Entrepreneurial Management
April 2004
An abstract is not available for this product.
13 pages
No. 04-022
Paul R. Lawrence and Charalambos A. Vlachoutsicos
Emeriti
October 2003
An abstract is not available for this product.
50 pages
Can Individual Investors Beat the Market?
No. 04-025
Joshua D. Coval, David Hirshleifer, and Tyler Shumway
Finance
October 2003
We document strong persistence in the performance of trades of individual investors. Investors classified in the top 10 percent place other trades that on average earn excess returns of 15 basis points per day. A rolling-forward strategy of going long firms purchased by previously successful investors and shorting firms purchased by previously unsuccessful investors results in excess returns of 5 basis points per day. These returns are not confined to small stocks nor to stocks in which the investors are likely to have inside information. Our results suggest that skillful individual investors exploit market inefficiencies to earn abnormal profits, above and beyond any profits available from well-known strategies based upon size, value, or momentum.
29 pages
Claiming Authority: Negotiating Challenges for Women Leaders
No. 04-052
Hannah Riley and Kathleen L. McGinn
Negotiation Organizations & Markets
April 2004
An abstract is not available for this product.
29 pages
Complexity, Networks and Knowledge Flow
No. 04-027
Olav Sorenson, Jan W. Rivkin, and Lee Fleming
Strategy , Technology & Operations Management
October 2003
Because knowledge plays an important role in the creation of wealth, economic actors may attempt to skew the flow of knowledge in their favor. Managers of a firm may seek to spread knowledge widely within their organization but prevent its diffusion to rivals. Regional planners may strive for rapid diffusion of knowledge within a local economy but not beyond it. We ask, "when will knowledge developed in one area of dense social connections such as a firm, a geographic locale, or a technological community tend to diffuse to the edge of that area but not further?" Marrying an understanding of social networks with a view of knowledge transfer as a search process, we argue that the degree of knowledge inequality across social boundaries depends crucially on the nature of the knowledge at hand. Simple knowledge diffuses readily across boundaries because outsiders with poor connection to the source of the knowledge can compensate for their poor access by means of unaided local search. Complex knowledge resists diffusion even within the social circles in which it originated. With knowledge of moderate complexity, however, insiders can achieve diffusion by coupling high-fidelity transmission along social conduits with local search, while interdependencies stymie outsiders who rely more heavily on unaided search. Our core proposition, then, is that knowledge inequality across social boundaries reaches its maximum for knowledge of moderate complexity. To test this hypothesis, we examine patent data and compare citation rates across three types of social boundaries: within versus outside the firm, geographically near to versus far from the inventor, and internal versus external to the technological class. We find robust support for the proposition and discuss the important implications of our findings for managers and policy makers who aim to heighten or diminish knowledge inequality.
51 pages
The Consumer Psychology of Mail-In Rebates: A Model of Anchoring and Adjustment
No. 04-043
John T. Gourville and Dilip Soman
Marketing
March 2004
Consumers who buy a product intending to use an accompanying mail-in rebate often do not redeem the rebate. To explain this behavior, we argue that consumers use an anchoring and adjustment approach to predicting the likelihood of redeeming a rebate. In keeping with previous research on anchoring and adjustment, for instance, we show that when presented with a desirable product, consumers anchor on scenarios of successful redemption and adjust insufficiently for things that could go wrong in the redemption process.
However, we also propose this anchoring and adjustment process is impacted by a consumers motivation to purchase the rebated product. In particular, we propose the anchor employed will be driven by the valence of a consumers underlying motivation. Specifically, a consumer that is motivated to purchase the product will anchor on scenarios of successful redemption while a consumer that is motivated to avoid purchasing will anchor on scenarios of failed redemption. We also propose that the degree of adjustment consumers employ will be driven by their strength of motivationi.e., the stronger the motivation, the less the adjustment to the motivational anchor.
Consequently, mail in rebates either can serve to enhance or to dampen purchase intention depending on a consumer's underlying motivation. In other words, rebates offer consumers a means to justify a preferred course of action. Across a series of three studies, we show this to be the case.
38 pages
Contextualizing Ties among Teammates: A Multi-Level Exploration
No. 04-018
Leslie Perlow, Jody Hoffer Gittell, and Nancy Katz
Organizational Behavior
October 2003
The focus of this article is the pattern of interactions that arise within small work teams, or what we call ties among teammates, and how organizational and institutional factors play a role in shaping these ties. Based on an ethnographic study of teams across three national contexts, we provide a thick description of the variation in ties among teammates. We further show how different patterns of ties form mutually reinforcing systems with aspects of the organizational context. Our findings suggest a nested theory of structuration, which has a range of implications for better understanding both stability and change in organizations.
54 pages
Currency Returns, Intrinsic Value, and Institutional Investor Flows
No. 04-036
Kenneth A. Froot and Tarun Ramadorai
Finance
January 2004
We decompose currency returns into permanent changes in intrinsic value and transitory movements, called respectively, intrinsic-value and expected-return shocks. We then explore these components and their interactions with institutional investor currency flows. We find that: expected-return shocks are much larger than intrinsic-value shocks; returns overreact to intrinsic-value shocks; expected-return shocks are reliably related to flows whereas intrinsic-value shocks are not; and that intrinsic-return shocks are, as theory would predict, positively related to forecasts of cumulated innovations of interest differentials. These results suggest that currency flows are related to short-term currency returns but not to currency values, and that currency values are better explained by important fundamentals. They also provide a rationale for the much-documented weakness of monetary and other models of the exchange rate: by failing to eliminate transitory shocks from exchange rate changes, these tests obscure the connection between exchange rates and fundamentals.
37 pages
Design Rules: Volume 1, The Power of Modularity: Preface to the Japanese Edition
No. 04-013
Carliss Y. Baldwin and Kim B. Clark
Negotiation Organizations & Markets
September 2003
This preface describes briefly how we came to write Design Rules, why we divided the work into two volumes, and what lies ahead in Volume 2. It provides both a personal and intellectual overview of our work.
14 pages
Downsizing Price Increases: A Greater Sensitivity to Price than Quantity in Consumer Markets
No. 04-042
John T. Gourville and Jonathan J. Koehler
Marketing
March 2004
As the cost of goods increase, manufacturers routinely pass these costs on to consumers through higher prices. A less obvious strategy is to maintain price, but to reduce the size of the product. In many ways, this downsizingshould mirror a straight price increase when it comes to consumer behavior. Marketplace and experimental data show this is not the case and that consumers are more sensitive to changes in price than to changes in quantity.
41 pages
Dynamic Mixed Duopoly: A Model Motivated by Linux Vs. Windows
No. 04-012
Ramon Casadesus-Masanell and Pankaj Ghemawat
Strategy
September 2003
This paper analyzes a dynamic mixed duopoly in which a profit-maximizing competitor interacts with a competitor that prices at zero (or marginal cost), with the cumulation of output affecting their relative positions over time. The modeling effort is motivated by interactions between Linux, an open-source operating system, and Microsoft's Windows in the computer server segment, and consequently emphasizes demand-side learning effects that generate dynamic scale economies (or network externalities). Analytical characterizations of the equilibrium under such conditions are offered, and some comparative static and welfare effects are examined.
43 pages
The Dynamics of Silencing Conflict
No. 04-014
Leslie Perlow and Nelson Repenning
Organizational Behavior
October 2003
In many organizations, when people perceive a difference with another they often do not fully express themselves. Despite creating innumerable problems, silencing conflict is a persistent phenomenon. While the antecedents of acts of silence are well documented, little is known about why norms of silencing conflict evolve. To explore this evolution, we draw on an ethnographic study that spanned the entire like of a dot.com, starting with its founding and ending with its sale to a larger company. Distilling our data using causal loop diagrams, we document the processes through which acts of silence became self-reinforcing. The dynamic model of silencing conflict induced from our data has implications not only for norm development, but for a variety of other domains including network analysis, autonomous actor models, diversity and demography, and change management.
57 pages
The Economics of Agility in Software Development
No. 04-057
Robert D. Austin and Lee Devin
Technology and Operations Management
May 2004
An abstract is not available for this product.
34 pages
Equity Style Returns and Institutional Investor Flows
No. 04-048
Kenneth Froot and Melvyn Teo
Finance
February 2004
This paper explores institutional investor trades in stocks grouped by style and the relationship of these trades with equity market returns. It aggregates transactions drawn from a large universe of approximately $6 trillion of institutional funds. To analyze style behavior, we assign equities to deciles in each of five style dimensions: size, value/growth, cyclical/defensive, sector, and country. We find, first, strong evidence that investors organize and trade stocks across style-driven lines. This appears true for groupings both strongly and weakly related to fundamentals (e.g., industry or country groupings versus size or value/growth deciles). Second, the positive linkage between flows and returns emerges at daily frequencies, yet becomes even more important at lower frequencies. We show that quarterly decile flows and returns are even more strongly positively correlated than are daily flows and returns. However, as the horizon increases beyond a year, we find that the flow/return correlation declines. Third, style flows and returns are important components of individual stock expected returns. We find that nearby style inflows and returns positively forecast future returns while distant style inflows and returns forecast negatively. Fourth, we find strong correlations between style flows and temporary components of return. This suggests that behavioral theories may play a role in explaining the popularity and price impact of flow-related trading.
49 pages
Evolution Interrupted: The European Automobile Industry, 1886-1975
No. 04-015
Nathan Simon and Michael Watkins
Negotiation Organizations & Markets
September 2003
The evolution of mass production methods in the European automobile industries was an interrupted rather than a linear one. Although Europeans invented the automobile and dominated the industrys early history, U.S. automakers took the lead by the First World War and held it for 60 years. Buffered by cultural preferences and government protection, European automobile industries drew only in part from the system of automobile manufacture worked out in the course of two revolutions (and attendant purges of low performance firms) in the United States. But European automakers failed to develop an internally consistent method of making and selling cars. They were consequently inefficient and out of step with the external shocks that reinforced U.S. innovations. The eclectic charter of European operations that obtained between the world wars was neither here nor there; European automakers could neither compete on the American terms of price or model variety nor did they conceive an alternative basis of competitive advantage. When they eventually cleaved to the U.S. model in the wake of the Second World War, they failed to appreciate the rigidities inherent therein that rendered them vulnerable to a new system evolving at the same time in Japan.
72 pages
Evolutionary Theory Revisited: Cognition, Hierarchy, and Capabilities
No. 04-028
Giovanni Gavetti
Strategy
October 2003
Building on a field study of Polaroid's transition from analog to digital imaging, this article identifies important lacunae in evolutionary research on capabilities. It argues that this research has focused excessively on the emergent, quasi-automatic nature of capability development, thus neglecting the role of cognition and deliberation. Furthermore, because it conceives capabilities as developing from below, this view grants no role, or a very restricted role, to influence from the top and therefore underplays the role of organizational hierarchy in capability development. This paper begins to fill these twin gaps. The field study grounds the development of an agent-based simulation model that focuses on processes of cognition and experimental learning at different levels of an organizational hierarchy. The model shows how these processes differ by hierarchical level, how they interact, and how corporate executives can influence these interactions. This conceptual apparatus allows me to build theory at two levels. On the one hand, I delineate the traits of a micro-foundation for research on capabilities that address these lacunae. On the other hand, I shed light on the role of corporate executives in the development of capabilities and, more broadly, in strategic decision-making.
58 pages
The Exploratory Processes of Entrepreneurial Firms: The Role of Purposeful Experimentation
No. 04-031
Fiona Murray and Mary Tripsas
Entrepreneurial Management
December 2003
While it is widely recognized that firms in an era of technological ferment exist under conditions of significant uncertainty and ambiguity, little is known about the exact process through which firms explore their ideas and resolve uncertainty. Arguing that our understanding of the era of ferment is much less developed than other aspects of the technology lifecycle, we examine the micro-dynamics of technology-based entrepreneurial firms during this period. We focus on the role of purposeful experimentation as a key form of learning for start-up firms in the era of ferment. Our approach contrasts with the prevailing view in the literature in which the era of ferment is characterized by extensive experimentation across firms, with each firm representing a single data point in an industry-level experiment. It also extends the learning literature by focusing on start-ups and taking the perspective that learning can encompass purposeful experimentation. The taxonomy defines the experimental landscape as having three domains -- technological, product and business model; and two dimensions -- degree of simultaneity and degree of parameter manipulation. We examine this framework using data from a technology-based start-up and find evidence for purposeful experimentation as a key element of the firm's learning strategy. We also highlighted the organizational constraints and challenges that are associated with experimentation. Our findings emphasize the importance of entrepreneurial action, choice and internal experimentation processes.
38 pages
Failing to Learn and Learning to Fail (Intelligently): How Great Organizations Put Failure to Work to Improve and Innovate
No. 04-053
Mark D. Cannon and Amy C. Edmondson
Technology and Operations Management
April 2004
Full Text
An abstract is not available for this product.
36 pages
A Field Study of Group Diversity, Participation in Diversity Education Programs, and Performance
No. 04-049
Robin J. Ely
Organizational Behavior
March 2004
This study examined the impact of four dimensions of diversitytenure, age, sex, and raceon performance in 486 retail bank branches and assessed whether employee participation in the firms diversity education programs influenced these relationships. Data came from archives of the demographic composition of branches, an employee attitude-satisfaction poll, and branch performance assessed as part of the banks bonus incentive plan. Race and sex diversity were unrelated to performance. The direct effects of tenure and age diversity were largely negative, but were moderated by quality of team processes, suggesting that cooperation and teamwork may suppress potentially task-enhancing differences associated with these aspects of diversity. Diversity education programs had minimal impact on performance. The results of this study suggest that there is a complex relationship between diversity and performance and that even in firms with characteristics that should be conductive to performance benefits from diversity, other conditions must be in place to foster such effects.
51 pages
Financial Intermediation as a Beliefs-Bridge between Optimists and Pessimists
No. 04-024
Joshua D. Coval and Anjan V. Thakor
Finance
October 2003
This paper proposes a new framework for understanding financial intermediation. In contrast to previous research, we consider a setting in which intermediaries possess no inherent information processing or monitoring advantages. Instead, in an economy with overly optimistic entrepreneurs who require funding from overly skeptical (pessimistic) investors, we show that intermediaries can arise endogenously. In such a setting, only a rational intermediary will be sufficiently optimistic to find it worthwhile to invest in a technology for screening entrepreneurs' projects, and yet be pessimistic enough to use this technology. Our framework produces implications consistent with, heretofore unexplained, stylized facts, and a number of others which are, as of yet, untested.
48 pages
From Rents to Risks: France's New Innovation Policy
No. 04-020
Gunnar Trumbull
Business, Government & the International Economy
October 2003
An abstract is not available for this product.
17 pages
Geographically-Colocated Subgroups in Globally Dispersed Teams: A Test of the Faultline Hypothesis
No. 04-007
Jeffrey T. Polzer, C. Brad Crisp, Sirkka L. Jarvenpaa, and Jerry W. Kim
Organizational Behavior
August 2003
Full Text
Members of dispersed work teams may be located geographically in a variety of configurations. In fully-dispersed teams, each member resides in a unique location, whereas partially-dispersed teams are composed of some colocated and some distant members. Configurations in which team members are divided into geographically-distinct subgroups may create faultline dynamics, characterized by disruptive intergroup relations between the subgroups including diminished trust and increased conflict. In a study of 45 groups consisting of a total of 266 graduate students from 15 different schools, we examined three different configurations of geographical dispersion in 6-person teams: (1) fully dispersed, (2) three colocated subgroups with two people each, and (3) two colocated subgroups of three people each. Both group-level and dyad-level analyses supported the faultline hypothesis. The study suggests that various contextual factors stemming from team members' geographical locations may shift the dimensions of diversity that are most consequential for team functioning.
45 pages
Improving Corporate Governance with the Balanced Scorecard
No. 04-044
Robert S. Kaplan and Michael E. Nagel
Accounting and Management
January 2004
Full Text
The paper identifies and briefly discusses the following primary responsibilities of a corporate board of directors:
1. Approve and monitor the enterprise's strategy
2. Approve major financial decisions
3. Select the chief executive officer, evaluate the CEO and senior executive team, ensure executive succession plans
4. Provide counsel and support to the CEO
5. Ensure compliance
The paper argues that board members, burdened by limited time and limited information, can participate in a more effective and efficient governance process by implementing a three-part Balanced Scorecard program. The program starts with an enterprise scorecard enabling the board to become more informed about the enterprise's strategy so that it can perform better its five primary responsibilities. The board can also create a Board Scorecard, which defines its primary outcomes, board processes, and skills, information, and meeting dynamics for more effective governance. Finally, executive scorecards enable the Board to evaluate the performance of each senior executive and his or her succession plans.
Incentives Versus Synergies in Markets for Talent
No. 04-037
Bharat N. Anand, Alexander Galetovic, and Alvaro Stein
Strategy
January 2004
Consider a cash-constrained and talented individual who must invest in acquiring a skill essential to execute a project. Skill acquisition may be financed by: (a) a corporation, which inserts the project into its pre-existing organization; or (b) a specialist that finances a stand-alone project. The specialist can commit to make talent the residual claimant, thus giving first-best effort incentives. The corporation, on the other hand, can exploit cross-project synergies, but only by centralizing operations, which weakens incentives. Property rights may be weak: talent may leave and develop the project elsewhere after acquiring the skill. In this setup, we systematically study who will finance talent. We show that weak property rights help corporations: for a given level of centralization, both effort and profits increase as property rights weaken. Moreover, we show that whenever the corporation beats the specialist and finances, it is socially efficient. We also endogenize the strength of property rights and the level of decentralization chosen by the corporation. We find that weak property rights are typically both preferred by the corporation and socially optimal. Moreover, the corporation will never choose to mimic the specialist financier, it will always choose some centralization, eschewing first-best effort incentives. Our results are consistent with (i) recent evidence that weak property rights do not discourage investments in R&D across sectors; (ii) talent working hard within corporations despite centralized organizational structures that weaken incentives. We apply the model to examine several apparently puzzling phenomena in markets for talent including: the dominance of financing by large firms despite severe conflicts of interest; and effort exertion by talent within large firms despite the well-known tension between art and commerce.
44 pages
Inter-Firm Modularity and the Implications for Product Development
No. 04-046
Nancy Staudenmayer, Mary Tripsas, and Christopher L. Tucci
Entrepreneurial Management
January 2004
An abstract is not available for this product.
41 pages
International Capital Flows when Investors have Local Information
No. 04-026
Joshua D. Coval
Finance
October 2003
While international capital flows have increased dramatically over the past two decades, from a risk-sharing perspective, world capital markets do not appear highly integrated. Investors continue to hold disproportionately large claims to domestic output, fund domestic investment mostly out of domestic savings, and consume at very different rates than agents residing abroad. In this paper, we investigate investment behavior in a model in which agents have superior information regarding domestic returns than those overseas. We show that such a setting, when calibrated to U.S. macroeconomic data, offers a unified explanation for the three risk-sharing puzzles in an environment of active capital flows. Investors' cross-border trading serves to amplify, rather than dampen, cross-border consumption differences and domestic savings-investment correlations.
40 pages
Judging Fund Managers by the Company they Keep
No. 04-023
Randolph Cohen, Joshua Coval, and Luboa Pástor
Finance
October 2003
We develop a performance evaluation approach in which a fund manager's skill is judged by the extent to which his investment decisions resemble the decisions of managers with distinguished performance records. The proposed performance measures use historical returns and holding of many funds to evaluate the performance of a single fund. Simulations demonstrate that our measures are particularly useful in ranking managers. In an application that relies on such ranking, our measures reveal strong predictability in the returns of U.S. equity funds. Our measures provide information about future fund returns that is not contained in the standard measures.
47 pages
Learning From Diversity: The Effects of Learning on Performance in Racially Diverse Teams
No. 04-017
Robin Ely and David Thomas
Organizational Behavior
October 2003
Recent theory suggests that when culturally diverse groups treat their diversity as a resource for learning how best to do the groups core work, work processes designed to facilitate constructive intergroup conflict and exploration of diverse views not only mitigate process losses associated with diversity but also foster performance gains. The theory remains untested, however, and does not address how a teams learning versus nonlearning perspective on racial diversity, as one dimension of cultural diversity, might influence performance in teams whose work content is substantively unrelated to racial issues or concerns. Using quantitative methods, we analyzed two years of demographic, survey, and performance data from over 450 retail bank branches, in which tasks are substantively unrelated to race. Results supported the hypothesis that racially diverse teams with a learning perspective on their diversity outperform racially diverse teams with a nonlearning perspective. Using qualitative methods, we show how employees in racially diverse branches with a learning perspective drew on their racial diversity as a valuable resource in and of itself, despite the apparent race-neutrality of their tasks, which may then have served as a catalyst to team learning more generally. Employees in branches with a nonlearning perspective on diversity advocated a race-blind ideology, which precluded learning from racial differences and the potential benefits of such learning for team learning more generally.
69 pages
Managing the Boundary of an Open Project
No. 04-021
Siobhán O'Mahony and Fabrizio Ferraro
Negotiation Organizations & Markets
October 2003
In the past ten years, the boundaries between public and open science and commercial research efforts have become more porous. Scholars have thus more critically examined ways in which these two institutional regimes intersect. Large open source software projects have also attracted commercial collaborators and now struggle to develop code in an open public environment that still protects their communal boundaries. This research applies a dynamic social network approach to understand how one community managed software project, Debian, develops a membership process. We examine the project's face-to-face social network during a five-year period (1997-2001) to see how changes in the social structure affect the evolution of membership mechanisms and the determination of gatekeepers. While the amount and importance of a contributor's work increases the probability that a contributor will become a gatekeeper, those more central in the social network are more likely to become gatekeepers and influence the membership process. A greater understanding of the mechanisms open projects use to manage their boundaries has critical implications for research and knowledge producing communities operating in pluralistic, open and distributed environments.
52 pages
Methodological Fit in Organizational Field Research
No. 04-056
Amy C. Edmondson and Stacy E. McManus
Technology and Operations Management
May 2004 (Rev. 1/05)
Methodological fit is an implicitly valued attribute of high-quality field research in organizations that receives little explicit attention in the management literature. Fit refers to internal consistency among elements of a research project – research question, prior work, research design, and theoretical contribution. We introduce a contingency framework that relates prior work – the state of theory and research – to the design of a research project, paying particular attention to the question of when to mix qualitative and quantitative data in a single research paper. We discuss implications of the framework for educating new field researchers.
50 pages
Model Structure Analysis through Graph Theory: Partition Heuristics and Feedback Structure Decomposition
No. 04-016
Rogelio Oliva
Technology and Operations Management
October 2003
The argument of this paper is that it is possible to focus on the structural complexity of system dynamics models to design a partition strategy that maximizes the test points between the model and the real world, and a calibration sequence that permits an incremental development of model confidence. It further argues that graph theory could be used as a basis for making sense of the structural complexity of system dynamics models, and that this structure could be used as a basis for more formal analysis of dynamic complexity. After reviewing the graph representation of system structure, the paper presents the rationale and algorithms for model partitions based on data availability and structural characteristics. Special attention is given the decomposition of cycle partitions that contain all the models feedback loops, and a unique and granular representation of feedback complexity is derived. The paper concludes by identifying future research avenues in this arena.
32 pages
Modularity in the Design of Complex Engineering Systems
No. 04-055
Carliss Y. Baldwin and Kim B. Clark
Finance
May 2004
An abstract is not available for this product.
37 pages
Multinationals and Linkages: An Empirical Investigation
No. 04-033
Laura Alfaro and Andrés Rodríguez-Clare
Business, Government & the International Economy
February 2004
Several recent papers have used plant-level data and panel econometric techniques to carefully explore the existence of FDI externalities. One conclusion that emerges from this literature is that it is difficult to find evidence of positive externalities from multinationals to local firms in the same sector (horizontal externalities). In fact, many studies find evidence of negative horizontal externalities arising from multinational activity while confirming the existence of positive externalities from multinationals to local firms in upstream industries (vertical externalities). In this paper we explore the channels through which these positive and negative externalities may be materializing, focusing on the role of backward linkages. In particular, we criticize the common usage of the domestic sourcing coefficient as an indicator of a firms linkage potential and propose an alternative, theoretically derived indicator. We then use plant-level data from several Latin American countries to compare multinationals linkage potential to that of domestic firms. We find that multinationals linkage potential in Brazil, Chile and Venezuela is higher than for domestic firms. For Mexico, we cannot reject the hypothesis that foreign and local firms have similar linkage potential. Finally, we discuss the relationship between this finding and the conclusions that emerge from the recent empirical literature. JEL Classification: F23, 019, 024 Keywords: Foreign Direct Investment, Multinational Firms, Linkages, Spillovers, Economic Development
55 pages
Normal Acts of Irrational Trust, Motivated Attributions, and the Trust Development Process
No. 04-004
J. Mark Weber, Deepak Malhotra, and J. Keith Murnighan
Negotiation Organizations & Markets
September 2003
This paper presents a new, motivated attributions model of trust development. The model builds on two simple insights: the parties in a potentially trusting relationship are likely to view their interaction differently and their attributions of each other's behavior will be self-servingly motivated. These interpersonal asymmetrie help to explain why trustors, contrary to the prescriptions of the dominant, rational choice approach, may engage in precipitous acts of trust and when and why these acts, rather than being irrational and ineffective, can be crucial to trust development. The paper explores the consequences of these insights for interpersonal interactions and discusses the potential for extensions to interorganizational interactions.
36 pages
Overchoice: The Effect of Assortment Type on Brand Choice
No. 04-041
John T. Gourville and Dilip Soman
Marketing
March 2004
Almost universally, product variety is thought to be good. Heterogeneity in tastes across and within individuals suggests a wide assortment should better meet the needs of consumers than a narrow assortment. Thus, a brand that provides increased variety should benefit through increased market share. This paper challenges these beliefs, demonstrating that under certain predictable conditions, increases in a brands assortment can decrease market share. We introduce the concept of assortment typeand argue the effect of assortment size on brand share will be moderated by assortment type. We define an alignable assortment as a set of brand variants that differ along a single, compensatory dimension such that choosing from that assortment only requires within-attribute tradeoffs. In contrast, we definite a non-alignableassortment as set of brand variants that simultaneously vary along multiple, non-compensatory dimensions, demanding between0attribute tradeoffs. In turn, we predict that increasing assortment will increase brand share when that assortment is alignable, but decrease brand share when that assortment is non-alignable. Across five studies, we (1) establish the counter-productive or overchoice effect of assortment size, (2) tie this effect to assortment type, (3) explore causal mechanisms for the effect, and (4) extend these findings to other familiar choice contexts. These results have theoretical implications for rational choice and managerial implications for managing a product portfolio.
43 pages
The Presentation of Self in the Information Age
No. 04-059
John Deighton
Marketing
May 2004
Full Text
The paper analyzes what it means to be personally identified in markets in an age of ubiquitous database technology, digital monitoring and unobtrusive surveillance, as a basis for conjectures about strategies for identity management by consumers and by firms. Identity is defined. Four levels of customer identification are distinguished, transitory, persistent, role-specific and self-expressive identification. We discuss implications of each for consumer behavior and the operation of markets.
19 pages
The Pricing and Profitability of Modular Clusters
No. 04-006
Carliss Y. Baldwin, Kim B. Clark, and C. Jason Woodard
Negotiation Organizations & Markets
September 2003
An abstract is not available for this product.
76 pages
The Process of International Expansion In Knowledge-Intensive Settings: Comparing Established Firms and Entrepreneurial Start-Ups
No. 04-005
Walter Kuemmerle
Entrepreneurial Management , Techonology and Operation Management
August 2003
Cross-border expansion of firms in knowledge-intensive industries and settings is driven by various factors including the knowledge available at the firm's home base and the level of knowledge that a firm can potentially appropriate through international expansion. This paper examines the process of international expansion in greater detail. I compare expansion decisions by established firms in the electronics and pharmaceutical industries with expansion decisions by entrepreneurial startups. I find that the characteristics of the expansion process are determined by the intra-firm context as well as by motives for international expansion. I also find that the intra-firm context for international expansion can put established firms at a considerable disadvantage relative to entrepreneurial firms.
40 pages
Regulation and Reaction: The Other Side of Free Banking in Antebellum New York
No. 04-038
David A. Moss and Sarah Brennan
Business, Government & the International Economy
April 2004
Free banking, which first appeared in the United States in the late 1830s, comprised two essential features: general incorporation for banks and rigorous security requirements for note issue. Because the general incorporation feature is what allowed free entry, it has typically been heralded as the centerpiece of the institution, leading some scholars to characterize free banking as laissez faire banking. Far from allowing free bankers complete freedom of action, however, free banking laws actually prohibited the most common form of intermediation of the time. By requiring that bank notes be fully backed with high-grade securities, these laws prevented banks from intermediating between liquid notes on the one hand and illiquid loans on the other. The purpose for this paper, therefore, is to explore the other side of free banking -- the regulatory side which banned the use of notes as a source of funds for non-marketable lending. After tracing the intellectual and legislative history of free banking in New York State (the first state to adopt an enduring free banking statute), we show that New York's 1838 law placed significant constraints on note issue, which ultimately helped to transform the nature of bank money throughout the state. We find, in particular, that these constraints led to a significant reduction in the issue of bank notes and a concomitant increase in the relative importance of demand deposits. This effect is visible not only by comparing note-to-deposit ratios in free versus chartered banks, but also by tracking changes in this ratio among a sample of chartered banks that were forced to convert to free banks when their charters expired (at scattered moments throughout the 1840s and 1850s). We conclude that the rise of free banking not only enhanced competition in the market for banking services (as a result of free entry) but fundamentally transformed bank balance sheets as well (as a result of the strict security requirement for note issue).
40 pages
Risk Management, Capital Budgeting and Capital Structure Policy for Insurers and Reinsurers
No. 04-035
Kenneth A. Froot
Finance
January 2004
This paper builds on Froot and Stein (1998) in developing a framework for analyzing the risk allocation, capital budgeting, and capital structure decisions facing insurers and reinsurers. The model incorporates three key features: i) value-maximizing insurers and reinsurers face product-market as well as capital market imperfections that give rise to well-founded concerns with risk management and capital allocation; ii) some, but not all, of the risks they face can be frictionlessly hedged in the capital market; iii) the distribution of their cashflows may be asymmetric, which alters the demand for underwriting and hedging. We show that these features result in a three-factor model that determines the pricing and allocation of risk and the optimal capital structure of the firm. This approach allows us to integrate these features into: i) the pricing of risky investment, underwriting, reinsurance, and hedging; and ii) the allocation of risk across all of these opportunities, and the optimal amount of surplus capital held by the firm.
45 pages
The Risk Tolerance of International Investors
No. 04-034
Kenneth A. Froot and Paul G.J. OConnell
Finance
January 2004
Investor confidence and risk tolerance are important concepts that investors are constantly trying to gauge. Yet these concepts are notoriously hard to measure in practice. Most attempts rely on price or return data, but these run into trouble when trying to disentangle whether an observed price change is attributable to a shift in investor confidence or a change in fundamental value. In this paper, we take an alternative approach by looking at the world-wide holdings and trading of risky assets. We model global capital markets as the interaction between large global institutional investors and smaller domestic investors from each country. This permits separation of global price changes into two components, one that reflects changes in demand and fundamentals perceived by all investors, and a second that reflects changes in the relative risk tolerance of institutional investors over and above that of domestics. The latter component, changes in relative risk tolerance of global institutions, is driven by the willingness of these investors to acquire additional assets in each country in proportion to their current holdings. Using our model, we show how data on asset holdings and flows across countries can be used to identify changes in risk tolerance. We then apply this identification scheme to recent data on the global portfolio holdings of institutional investors. The resulting measure of risk tolerance impressionistically accords well with periods of market turbulence and quiescence. It also accounts for a considerable portion of the variation in portfolio holdings and is informative about future returns.
23 pages
Small Worlds and Regional Innovation
No. 04-008
Lee Fleming, Adam Juda, and Charles King, III
Technology and Operations Management
October 2004
Although small world networks have attracted recent theoretical attention, there exist fewer empirical studies of their evolution and practical importance. This paper investigates how network structure influences innovation and patenting of two critical inputs to our scientific and economic growth. We study the influence of small world structure on regional innovation by investigating networks of inventor collaborations on all U.S. patents from 1975 through 1999. We illustrate crossover from large to small world structure and the emergence of giant components in regional collaboration networks. Small world structure and size of the giant component demonstrate positive and significant influences upon subsequent productivity.
15 pages
Social Enterprise Series No. 27: Nonprofit Geographic Expansion: Branches, Affiliates, or Both?
No. 04-011
Jane Wei-Skillern and Beth Battle Anderson
General Mangement
September 2003
Nonprofit organizations often move into new territories by establishing local braches, affiliates, or a combination of branches and affiliates, resulting in a plural form. This paper presents data from a survey of U.S. nonprofit leaders who have experience with or are considering expanding their organizations via branches, affiliates, or both. By capturing the perspectives of front-line nonprofit managers, this research aims to provide greater insight into the process of geographic expansion and to explore some of the key similarities and differences across these three organizational structures.
The most substantial finding from this research is that regardless of organizational structure, some of the anticipated benefits of scale failed to materialize, while other, unanticipated benefits seemed to dominate across all expansion strategies. Economies of scale were often less than anticipated, and tapping into new funding sources was a significant benefit primarily for affiliates. In contrast, the benefits from both brand and organizational learning consistently exceeded expectations across all strategies. Based on our investigations, we offer new hypotheses for exploring the strategic preferences, motivations, challenges, and benefits of nonprofit expansion via a range of organizational structures.
41 pages
Social Enterprise Series No. 28: Social Entrepreneurship and Commercial Entrepreneurship: Same, Different, or Both?
No. 04-029
James Austin, Howard Stevenson, and Jane Wei-Skillern
General Management , Entrepreneurial Management
October 2003
Entrepreneurship has been a driving force behind the rapid expansion of the voluntary sector as well as the engine propelling much of the growth of the business sector. This paper examines the extent to which elements that contribute to successful business entrepreneurship can be adapted and applied to successful social entrepreneurship. This paper offers a comparative analysis of commercial and social entrepreneurship based on a prevailing analytical model from commercial entrepreneurship. The analysis highlights key similarities and differences between these two forms of entrepreneurship and presents a framework for how to approach the social entrepreneurial process more systematically and effectively.
33 pages
Social Enterprise Series No. 29: HIV/AIDS and Business in Africa and Asia: A Guide to Partnerships
No. 04-047
Diana Barrett
General Management
February 2004
An abstract is not available for this product.
25 pages
Speed, Search and the Failure of Simple Contingency
No. 04-019
Nicolaj Sigglekow and Jan W. Rivkin
Strategy
October 2003
It is widely accepted that an organization's internal design should be contingent on the nature of its external environment. Yet attempts to construct simple contingency relationships, i.e., one-to-one mappings from environmental conditions to appropriate design elements, have met with limited success. We shed light on this lack of success by means of an agent-based simulation in which modeled firms of different designs face various environmental conditions. We find robustly that turbulent environments call for organizational features that generate high speed of improvement, and complex environments call for features that engender diverse search. The precise design features that produce speedy improvement and diverse search, however, vary dramatically from one decision-making archetype to another. A feature that accelerates improvement in a decentralized firm, for instance, may slow it down in a hierarchical firm. It is this subtlety that undermines simple contingency relationships. We argue that the intermediate constructs speed of improvement and diversity of search clarify the mapping between environment and appropriate design and may point the way to more nuanced contingency hypotheses.
47 pages
Strategic Initiatives: Changing the Firm’s DNA
No. 04-058
Michel A. Roberto and Lynne C. Levesque
General Management
May 2004
An abstract is not available for this product.
23 pages
Thinking about Technology: Applying a Cognitive Lens to Technical Change
No. 04-039
Sarah Kaplan and Mary Tripsas
Entrepreneurial Management
January 2004
Full Text
We apply a cognitive lens to understanding technology trajectories across the life cycle by developing a coevolutionary model of technological frames and technology. Applying that model to each stage of the technology life cycle, we identify conditions under which a cognitive lens might change the expected technological outcome predicted by purely economic or organizational models. We also show that interactions of producers, users and institutions shape the development of collective frames around the meaning of new technologies. We thus deepen our understanding of sources of variation in the era of ferment, conditions under which a dominant design may be achieved, the underlying architecture of the era of incremental change and the dynamics associated with discontinuities.
44 pages
Time-Driven Activity-Based Costing
No. 04-045
Robert S. Kaplan and Steven R. Anderson
Accounting and Management
January 2004
Full Text
The traditional ABC model has been difficult for many organizations to implement because of the high costs incurred to interview and survey people for the initial ABC model, the use of subjective and costly-to-validate time allocations, and the difficulty of maintaining and updating the model as (i) processes and resource spending change, (ii) new activities are added, and (iii) increases occur in the diversity and complexity of individual orders, channels and customers.
Time-driven ABC requires estimates of only two parameters: (1) the unit cost of supplying capacity and (2) the time required to perform a transaction or an activity. A time-driven ABC model:
- can be estimated and installed quickly
- is easily updated to reflect changes in processes, order variety, and resource costs
- can be data fed from transactional ERP and CRM systems
- can be validated by direct observation of the model's estimates of unit times
- can scale easily to handle millions of transactions while still delivering fast processing times and real-time reporting
- explicitly incorporates resource capacity and highlights unused resource capacity for management action
- exploits time equations that incorporate variation in orders and customer behavior without expanding model complexity
The paper uses simple numerical examples to articulate the fundamentals of time-driven ABC and provides several examples of companies that have implemented the approach and enjoyed rapid and significant profit improvements.
Transitions through Out-Of-Keeping Acts
No. 04-051
Kathleen McGinn, Elizabeth Long Lingo and Karin Ciano
Negotiation Organizations & Markets
April 2004
An abstract is not available for this product.
19 pages
Which Types of Analyst Firms Make More Optimistic Forecasts?
No. 04-009
Amanda Cowen, Boris Groysberg, and Paul Healy
Organizational Behavior , Accounting and Management
August 2003
Research optimism among securities analysts has been attributed to incentives provided by underwriting activities. We examine how analysts' forecast optimism varies with the business activities used to fund research. We find that analysts at firms with underwriting and trading businesses are actually less optimistic than those at pure brokerage houses, who perform no underwriting. The relatively less optimistic forecasts for underwriting firms are not fully explained by bank reputation. Nor is the relative optimism of brokerage firms explained by the types of clients they serve (retail or institutional). We conclude that sales and trading activities used to fund research create strong incentives for analyst optimism.
52 pages
Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation
No. 04-040
Laura Alfaro, Sebnem Kalemli-Ozcan, and Vadym Volosovych
Business, Government & the International Economy
April 2004
An abstract is not available for this product.
51 pages