Blog
Articles, news, resources, and to help you become a better CEO...
What’s the cost of your job?
In this uncertain economy, it seems like many folks are looking for a lifeboat to jump into. In particular, the unemployed and underemployed seem to be grasping for a life preserver. This group seems to believe that a job is the answer to their prayers. As a...
Business Model Trend #2- Stakeholder Transparency
Winning business models will use the web to lower costs and add value. There are three primary methods by which this can be accomplished:
1. Giving customers access to information.
How many customers are calling your company for pricing, manuals, and information that could be posted on the web? If only 1/5th of an employee is devoted […]
Business Model Trend #3- Create Recurring Revenue
Winning business models of the future will use membership models such as: home repair clubs, weight loss clubs, computer repair clubs and hundreds of other recurring revenue models to make their sales more predictable and profitable.
Of course, to create a business model with recurring revenue, you must have a suitable customer base and product. However, […]
The Architecture of Complex Systems: Do Core-periphery Structures Dominate?
| Published: | February 11, 2010 |
| Paper Released: | January 2010 |
| Authors: | Alan MacCormack, Carliss Y. Baldwin, and John Rusnak |
Executive Summary:
All complex systems can be divided into a nested hierarchy of subsystems. However, not all these subsystems are of equal importance: Some subsystems are core to system performance, whereas others are only peripheral. In this study, HBS professor Carliss Y. Baldwin and coauthors developed methods to detect the core components in a complex software system, establish whether these systems possess a core-periphery structure, and measure important elements of these structures. The general patterns highlight the difficulties a system architect faces in designing and managing such systems. Results represent a first step in establishing stylized facts about the structure of real-world systems. Key concepts include:
- Core-periphery structures dominate the sample, with 75-80 percent of systems in the sample possessing such a structure.
- It is significant that a substantial number of systems lack such a structure. This implies that a considerable amount of managerial discretion exists when choosing the “best” architecture for a system.
- Variations in system structure can be explained, in part, by the different models of development used to develop systems.
- Legacy code is rarely rewritten, but instead forms a platform upon which new systems are built. With such an approach, today’s developers bear the consequences of design decisions made long ago.
Abstract
Any complex technological system can be decomposed into a number of subsystems and associated components, some of which are core to system function while others are only peripheral. The dynamics of how such “core-periphery” structures evolve and become embedded in a firm’s innovation routines has been shown to be a major factor in predicting survival, especially in turbulent technology-based industries. To date however, there has been little empirical evidence on the propensity with which core-periphery structures are observed in practice, the factors that explain differences in the design of such structures, or the manner in which these structures evolve over time.
We address this gap by analyzing a large number of systems in the software industry. Our sample includes 1,286 software releases taken from 19 distinct applications. We find that 75-80% of systems possess a core-periphery structure. However, the number of components in the core varies widely, even for systems that perform the same function. These differences appear to be associated with different models of development – open, distributed organizations developing systems with smaller cores. We find that core components are often dispersed throughout a system, making their detection and management difficult for a system architect. And we show that systems evolve in different ways – in some, the core is stable, whereas in others, it grows in proportion to the system, challenging the ability of an architect to understand all possible component interactions. Our findings represent a first step in establishing some stylized facts about the structure of real world systems.
37 pages
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: January 2010
- HBS Working Paper Number: 10-059
- Faculty Unit: Finance
Business Model Trend #4- Too Few Geniuses, Too Many Drones
Technology has allowed businesses to automate processes to such a large extent that under-educated and under-skilled employees have little value other than hand-tasks that machines cannot do. Fifteen years ago, I highly skilled customer service representative was a valued employee. Today, companies have created a workflow process that allows anyone of average skill to perform […]
Investing in Improvement: Strategy and Resource Allocation in Public School Districts
| Published: | February 10, 2010 |
| Paper Released: | January 2010 |
| Author: | Stacey Childress |
Executive Summary:
The operating environments of public school districts are largely void of the market forces that reward a company’s success with more capital and exert pressure on it to eventually abandon unproductive activities. HBS senior lecturer Stacey Childress describes the strategic resource decisions in 3 of the 20 public school districts that she and colleagues have studied through the Public Education Leadership Project at Harvard. The stories in San Francisco, New York City, and Maryland’s Montgomery County occurred largely before the districts faced dramatic decreases in revenues, though they show the superintendents facing budget concerns near the end of the narratives. Even so, the situations share common principles that superintendents and their leadership teams can use to make differentiated resource decisions—reducing spending in some areas and increasing it in others with a clear rationale for why these decisions will produce results for students. Key concepts include:
- Given the rarity of strategic approaches to resource allocation described in the examples, it is clear that district leaders need more guidance and tools to help them make better decisions and manage the consequences, particularly when they are under enormous fiscal pressure.
- Back your strategy with a resource plan—otherwise it is not a strategy.
- Don’t get trapped by the dogma of decentralization.
- If leaders alienate influential stakeholders when budgets are flush, it will be even more difficult to preserve key strategic investments during financial crises.
Abstract
This working paper offers concrete examples of improved productivity and efficiencies at the district level, drawing from the author’s experience working with districts and developing such case studies for Harvard Business School. Childress makes the point that given the rarity of the strategic approaches to resource allocation, district leaders need more guidance and tools to help them make better decisions and manage the consequences, particularly when they are under enormous fiscal pressure.
32 pages.
Paper Information
- Full Working Paper Text
- Working Paper Publication Date: January 2010
- HBS Working Paper Number: 10-057
- Faculty Unit: General Management
First Look: Feb. 9
Ready to do business in a developing economy? Don’t just focus on its market size or growth potential. It’s better to first scope out opportunities to build or improve efficient business operations such as credit-card systems, intellectual-property adjudication, and data research firms, according to Winning in Emerging Markets: A Road Map for Strategy and Execution, a new guide set for release this spring from Harvard Business Press.
Identifying and filling such “institutional voids” is key to long-term success, write the authors, HBS professors Tarun Khanna and Krishna G. Palepu, who are experts on strategy and governance in emerging markets worldwide. Khanna is faculty chair for HBS activities in India and the author of Billions of Entrepreneurs: How China and India are Reshaping Their Futures and Yours (2008). Palepu is the School’s senior associate dean for International Development.
Focusing on opportunities in the U.S. education sector, Senior Lecturer Stacey M. Childress highlights exciting innovations over the past decade in Transforming Public Education: Cases in Education Entrepreneurship. This just-released book uses 18 case studies to explore trends in education entrepreneurship, along the way explaining how to assess possibilities and constraints, evaluate impact, and recognize the challenges ahead.
— Martha Lagace
Working Papers
The Architecture of Complex Systems: Do Core-Periphery Structures Dominate?
| Authors: | Alan MacCormack, Carliss Baldwin, and John Rusnak |
|---|
Abstract
Any complex technological system can be decomposed into a number of subsystems and associated components, some of which are core to system function while others are only peripheral. The dynamics of how such “core-periphery” structures evolve and become embedded in a firm’s innovation routines has been shown to be a major factor in predicting survival, especially in turbulent technology-based industries. To date, however, there has been little empirical evidence on the propensity with which core-periphery structures are observed in practice, the factors that explain differences in the design of such structures, or the manner in which these structures evolve over time. We address this gap by analyzing a large number of systems in the software industry. Our sample includes 1,286 software releases taken from 19 distinct applications. We find that 75%-80% of systems possess a core-periphery structure. However, the number of components in the core varies widely, even for systems that perform the same function. These differences appear to be associated with different models of development—open, distributed organizations developing systems with smaller cores. We find that core components are often dispersed throughout a system, making their detection and management difficult for a system architect. And we show that systems evolve in different ways—in some, the core is stable, whereas in others, it grows in proportion to the system, challenging the ability of an architect to understand all possible component interactions. Our findings represent a first step in establishing some stylized facts about the structure of real-world systems.
Download the paper: http://www.hbs.edu/research/pdf/10-059.pdf
Quality Provision, Expected Firm Altruism and Brand Extensions
| Author: | Julio J. Rotemberg |
|---|
Abstract
This paper studies quality choice in a model where consumers expect firms to act altruistically. It is shown that, under plausible assumptions regarding this altruism and the reaction of consumers to firms that demonstrate insufficient altruism, existing firms (or brands) can face a larger demand for new products than new entrants. Moreover, the failure of new products can reduce the demand for a brand’s existing products even if the quality of these existing products is well understood by consumers. The model provides an interpretation for the dependence of the success of brand extensions on the “fit” between the original product and the extension. Lastly, the model can explain why a “high-end” firm that is expected to care only for its most quality-sensitive customers can have an advantage in introducing a product relative to a firm that is expected to be more widely altruistic.
Download the paper from SSRN ($5): http://papers.nber.org/papers/w15635
Publications
Transforming Public Education: Cases in Education Entrepreneurship
| Author: | Stacey Childress |
|---|---|
| Publication: | Cambridge, Mass.: Harvard Education Press, 2010 |
Abstract
Based on a popular education entrepreneurship course at Harvard Business School, Transforming Public Education organizes 18 case studies into modules that reflect the predominant opportunities pursued by social entrepreneurs focused on public education in the United States over the last decade. The book offers an overarching framework for creating and evaluating social ventures as well as summaries of the potential for impact and the challenges in a number of opportunity areas.
Purchase the book: http://www.hepg.org/hep/book/113/TransformingPublicEducation
Transforming Public Education: Instructors Guide
| Author: | Stacey Childress |
|---|---|
| Publication: | Cambridge, Mass.: Harvard Education Press, 2010 |
Abstract
Companion teaching and module notes for Transforming Public Education: Cases in Education Entrepreneurship.
Winning in Emerging Markets: A Road Map for Strategy and Execution
| Authors: | Tarun Khanna, Krishna G. Palepu, and Richard Bullock |
|---|---|
| Publication: | Harvard Business Press, forthcoming April |
Abstract
The best way to select emerging markets to exploit is to evaluate their size or growth potential, right? Not according to Krishna Palepu and Tarun Khanna. In Winning in Emerging Markets, these leading scholars on the subject present a decidedly different framework for making this crucial choice. The authors argue that the primary exploitable characteristic of emerging markets is the lack of institutions (credit-card systems, intellectual-property adjudication, data research firms) that facilitate efficient business operations. While such “institutional voids” present challenges, they also provide major opportunities for multinationals and local contenders. Palepu and Khanna provide a playbook for assessing emerging markets’ potential and for crafting strategies for succeeding in those markets. They explain how to spot institutional voids in developing economies, including in product, labor, and capital markets, as well as social and political systems; identify opportunities to fill those voids, for example, by building or improving market institutions yourself; and exploit those opportunities through a rigorous five-phase process, including studying the market over time and acquiring new capabilities. Packed with vivid examples and practical toolkits, Winning in Emerging Markets is a crucial resource for any company seeking to define and execute business strategy in developing economies.
Pre-purchase the book: http://hbr.org/product/winning-in-emerging-markets-a-road-map-for-strateg/an/13216-HBK-ENG?N=4294958505%204294934481
The Architecture of Platforms: A Unified View
| Authors: | Carliss Y. Baldwin and C. Jason Woodard |
|---|---|
| Publication: | Chap. 2 in Platforms, Markets and Innovation, edited by Annabelle Gawer. Cheltenham, UK and Northampton, Mass.: Edward Elgar Publishing, 2009, paperback edition |
An abstract is unavailable at this time.
Opening Platforms: When, How and Why?
| Authors: | Thomas R. Eisenmann, Geoffrey Parker, and Marshall Van Alstyne |
|---|---|
| Publication: | Chap. 6 in Platforms, Markets and Innovation, edited by Annabelle Gawer. Cheltenham, UK and Northampton, Mass.: Edward Elgar Publishing, 2009, paperback edition |
Abstract
Platform-mediated networks encompass several distinct types of participants, including end users, complementors, platform providers who facilitate users’ access to complements, and sponsors who develop platform technologies. Each of these roles can be opened—that is, structured to encourage participation—or closed. This paper reviews factors that motivate decisions to open or close mature platforms. At the platform provider and sponsor levels, these decisions entail 1) interoperating with established rival platforms, 2) licensing additional platform providers, or 3) broadening sponsorship. With respect to end users and complementors, decisions to open or close a mature platform involve 1) backward compatibility with prior platform generations, 2) securing exclusive rights to certain complements, or 3) absorbing complements into the core platform. Over time, forces tend to push both proprietary and shared platforms toward hybrid governance models characterized by centralized control over platform technology (i.e., closed sponsorship) and shared responsibility for serving users (i.e., an open provider role).
Purchase the book: http://www.e-elgar.co.uk/Bookentry_Main.lasso?id=13257
Too Many Cooks Spoil the Broth: How High Status Individuals Decrease Group Effectiveness
| Authors: | Boris Groysberg, Jeffrey T. Polzer, and Hillary Anger Elfenbein |
|---|---|
| Publication: | Organization Science (forthcoming) |
Abstract
Can groups become effective simply by assembling high status individual performers? Though an affirmative answer may seem straightforward on the surface, this answer becomes more complicated when group members benefit from collaborating on interdependent tasks. Examining Wall Street sell-side equities research analysts who work in an industry in which individuals strive for status, we find that groups benefited—up to a point—from having high status members, controlling for individual performance. With higher proportions of individual stars, however, the marginal benefit decreased before the slope of this curvilinear pattern became negative. This curvilinear pattern was especially strong when stars were concentrated in a small number of sectors, likely reflecting suboptimal integration among analysts with similar areas of expertise. Control variables ensured that these effects were not the spurious result of individual performance, department size or specialization, or firm prestige. We discuss the theoretical implications of these results for the literatures on status and groups, along with practical implications for strategic human resource management.
The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization on Corporate Hierarchies
| Authors: | Maria Guadalupe and Julie Wulf |
|---|---|
| Publication: | American Economic Journals: Applied Economics (forthcoming) |
Abstract
This paper establishes a causal effect of product market competition on various characteristics of organizational design. Using a unique panel-dataset on firm hierarchies of large U.S. firms (1986-1999) and a quasi-natural experiment (trade liberalization), we find that competition leads firms to flatten their hierarchies: firms reduce the number of positions between the CEO and division managers and increase the number of positions reporting directly to the CEO. The results illustrate how firms redesign their organizational structure through a set of complementary choices in response to changes in their environment. We discuss several possible interpretations of these changes.
Managing Risk in the New World
| Authors: | Robert S. Kaplan, Anette Mikes, Robert Simons, Peter Tufano, and Michael Hofmann |
|---|---|
| Publication: | Harvard Business Review 84, no. 10 (October 2009): 68-75 |
An abstract is unavailable at this time.
Preview the article: http://hbr.org/2009/10/managing-risk-in-the-new-world/ar/1
Behavioral Aspects of Price Setting, and Their Policy Implications
| Author: | Julio J. Rotemberg |
|---|---|
| Publication: | In Policymaking Insights from Behavioral Economics. Boston: Federal Reserve Bank of Boston, 2009 |
Abstract
This paper starts by discussing consumers’ cognitive and emotional reaction to posted prices. Cognitively, some consumers do not appear to make effective use of price information to maximize their consumption-based utility. Emotionally, prices can induce regret and anger among consumers. The optimal responses of firm’s prices to these reactions can explain why firms charge prices below marginal cost for many goods and why they keep their prices rigid. This explanation of price rigidity has the advantage of being consistent with the observation that the typical size of price increases is nearly invariant to inflation. Lastly, the paper turns to some government policies regarding prices that appear to have some consumer support. It argues that both laws against price gouging and laws regulating the terms of mortgages may have support because consumers recognize that many people do not optimize their consumption effectively and because they are angry at firms that take advantage of this. These attitudes can also explain consumer support for monetary policies that maintain a low level of average inflation.
Cases & Course Materials
NovoCure Ltd.
William A. Sahlman and Sarah Greene Flaherty
Harvard Business School Case 810-045
Venture capitalist William Doyle must raise $35 million for a portfolio company with a promising, novel cancer therapy, just as global capital markets are imploding in the fall of 2008. NovoCure, Ltd., has developed an electrical-field-based therapy, called Tumor Treating fields, for the treatment of cancerous tumors. The therapy has shown significant efficacy with no side effects after five years of testing in human patients. Doyle believes NovoCure has the potential to become an important company with a major new cancer therapy platform but must complete pivotal (Phase III) clinical trials and receive FDA approval. Doyle’s venture capital firm, WFD Ventures, has invested $25 million in three rounds to fund pilot clinical trials for glioblastoma and other non-small cell lung cancer, and the first pivotal clinical trial for glioblastoma. Additional financing is needed to proceed with the strategically important second pivotal trial. In the fall of 2008 Doyle was negotiating the final terms of an investment by two prominent hedge funds when the liquidity crisis caused the hedge funds to withdraw from the transaction. Dole must now reevaluate his options for securing the needed financing for this promising young company.
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/810045-PDF-ENG
Zara: Managing Stores for Fast Fashion
Zeynep Ton, Elena Corsi, and Vincent Dessain
Harvard Business School Case 610-042
Pablo Isla, the CEO of Zara, wanted to improve operational efficiencies in managing its store network. In particular, he wanted to improve labor productivity at the stores. He considered outsourcing certain store operations to third parties, changing the way store managers were compensated, and creating formal operating procedures for store operations. But he knew he had to be careful. Could an emphasis on improving labor productivity hurt other aspects of store operations?
Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/610042-PDF-ENG
HBS Cases: Looking Behind Google's Stand in China
| Q&A with: | John A. Quelch |
| Published: | February 8, 2010 |
| Author: | Sean Silverthorne |
Google, the “do no evil” company, gained entry into the Chinese search engine market last decade by agreeing to ban search results on topics deemed sensitive by the Chinese government. To Google’s way of thinking, it could do more good for Internet freedom and the cause of human rights by working inside the country to create value for its Chinese users, employees, and business partners. To critics, Google was selling out its core principles to play in the world’s second largest economy.
So it was a shocking turn of events on January 12 when Google announced it would pull up stakes in China unless the country agreed to stop censoring search. The precipitating event: an unsuccessful cyber attack from inside China attempting to burrow into the Gmail accounts of Chinese dissidents. Since the announcement, little has transpired publicly; the two sides are presumably negotiating.
Who are the winners and losers here? Has China been taught a lesson? Has Google been outfoxed? What can other companies learn from this collision of cultures?
Harvard Business School professor John A. Quelch and research associate Katherine E. Jocz have just published a case study, titled Google in China (Case 9-510-071), based on public sources, that delves into some of these issues. We talked with Quelch last week.
Sean Silverthorne: Some see this as a heroic effort by Google to live up to its “do no evil” pillar. But others note the company is turning its back on its Chinese employees, users, partners, and an incredibly large market opportunity that would benefit Google shareholders. What’s your view?
John A. Quelch: Google acted precipitously without giving due consideration to the impact of the announcement on stakeholders, including their Chinese employees, consumers, and business partners.
Google’s justification is that they are putting a stake in the ground on behalf of human rights. If Google is forced out of China, this could become a rallying cry for Internet freedom worldwide, to the benefit of the Google brand. And eventually, the Chinese regime might change to a more democratic form of government, in which case Google’s stand might go down in history as one of seminal moments on China’s road to democracy.
But this upside for Google is relatively speculative. The immediate downside consequences are more certain. Google has some 700 employees in China, the best of whom are already finding alternative employment. So de facto, Google is going to be a much smaller entity in China. It seems unlikely to me that many talented Chinese will be lining up for jobs at Google in China going forward.
Google’s announcement has also disrupted the plans of a number of important business partners such as Samsung and Motorola, who were all set to launch Android-platform handsets in China. I doubt those partners were notified ahead of time.
Q: OK then, why did Google take this course of action?
A: The hacking incident was probably the last straw in a rather long line of issues.
Sooner or later, Google had to stand up for its principles. They have always been at odds internally as to whether or not being in China, operating a self-censorship approach, is consistent with their “do no evil” philosophy.
Add to this the business fact that only 1 percent of their revenues come from China. There is no reason to suppose that they were going to do any better by being cooperative with the Chinese government.
Interestingly, a resolution had been reached in the prior week on a separate matter involving the China Written Works Copyright Society, which accused Google of failure to inform or pay authors of books it was digitizing. Google issued an apology. My suspicion is there was thought to be a quid pro quo due from the Chinese that failed to materialize.
Q: One point made by your case, perhaps missed by Google, is that companies doing business abroad must be able to see the world through the eyes of the host government.
A: The Chinese government was taken aback by the Google announcement. True to form, they responded very cautiously initially, while they deliberated what to do. The initial Chinese response came from a mid-level spokesperson at the Foreign Ministry, while the initial response from the United States government came from the secretary of state herself—and that perhaps elevated the conflict.
Now the Google issue has become a cause célèbre that encapsulates and exacerbates the already fragile and festering U.S.-China relationship. On the other hand, the concern over human rights in China is a big deal for many in the Western world.
The Chinese argue that they allow and support free information flow over the Internet with some restrictions. They contend that the United States doesn’t feel any discomfort hacking into the Internet traffic of U.S. citizens who are suspected terrorists in the United States. Rightly or wrongly, the Chinese view the political dissidents and Falun Gong activists whom they attempt to track as equivalent.
Q: It was interesting that no other companies backed Google in this dispute. Microsoft CEO Steve Ballmer called it “Google’s problem.”
A: Google’s announcement was self-confident and unilateral, but they have the market capitalization to back it up.
Among multinationals doing business in China, many others have endured cyber attacks on their private networks, although it is unlikely those attacks had the same human rights implications as the attacks on Google.
Multinationals doing business in China have been almost universal in their unwillingness to publicly support Google. Their view is that Google has needlessly upset the apple cart for everybody else. For many of these multinationals, China is or will soon be their second most important market in the world. That is not true of Google.
Q: If Google is forced to exit China, will it be a blow financially?
A: I don’t think so, although they were looking to make progress in China with other lines of business, such as the Android mobile phone platform.
Q: Do you think Google has at least won the PR war here, and raised the flag of human rights in China?
A: Not yet. Today Google is still self-censoring content exactly the same way as they were on January the eleventh. So Google has shot itself in the foot without gaining the moral high ground.
How can you impress your customers and supporters around the world through this announcement if you don’t actually follow through?
Q: Best guess: Will this dispute be resolved, or will Google be forced to keep its word and abandon China? Does China need Google more than Google needs China?
A: The Chinese cannot permit Google’s public challenge to go unpunished. However, they need not do anything, as the leading employees of Google China are jumping ship to take jobs with Baidu and other competitors. Google will soon be down to a skeleton shift in China and, if they are permitted to stay, they will have a tough time recruiting new employees.
Q: Are there lessons here for other multinationals doing business in emerging economies?
A: Government relations are critical to business effectiveness in developed as well as in emerging economies. But, in emerging economies, where the public sector and government-controlled enterprises are usually a higher percentage of GDP, managing government relations at the national, provincial, and local levels is even more important.
You have to know what you are getting into. You have to know whom you are dealing with, what their expectations are, what their rules are. And you either have to operate on a “when in Rome do as the Romans do” policy, or, if you have a clear set of global values that cannot be compromised, you have to decide which countries are off limits.
The Foreign Corrupt Practices Act helps U.S. multinationals protect their employees from being compromised. But we have no rules of engagement that bear upon the defense of human rights of citizens in host countries in which our multinationals operate.
Q: What do you make of China’s assertiveness of late, not only in the business sphere but in the political world as well?
A: China has become more emboldened and self-confident as a result of its increasing economic significance. China is reluctant to be badgered by Western companies or Western governments into changing its rules and regulations.
The Chinese do not yet understand international public relations and have perhaps too short-term a view. If they have power and are in the driver’s seat today, they act very confident. If, on the other hand, they take a hit or two economically, they become more flexible. There is a very short-term transactional aspect to their diplomacy, which is reflected in their unwillingness to bend on these issues. They certainly are not going to change their ways because of a threat from Google. 
About the author
Sean Silverthorne is Editor-in-Chief of HBS Working Knowledge.
Freakonomics and Your Business Model
The other day I saw Steven Levitt, the author of the best-selling book Freakonomics speak at DePauw University. Aside from the fascinating stories, one thing struck me: How does a University of Chicago Economics professor end up studying Chicago drug rings and Sumo wrestlers. More interestingly, how does he get famous for it and end […]
How the Mighty Can Fall
Fifteen years ago, Blockbuster controlled nearly 80% of the video rental market and practically printed money. What happened?
Wal-Mart did not event discounting, Woolworth’s did in the 1800’s. However, Woolworth’s got out-Woolworthed by Kmart and now Kmart has been out-Kmarted by Wal-Mart. My bet is that Wal-Mart could get out-Wal-Marted if they aren’t careful.
Why did these […]
