Most organizations are inherently resistant to change. How does an insider work to move the needle to make a difference? A new paper by Julie Battilana and Tiziana Casciaro, "Overcoming Resistance to Organizational Change: Strong Ties and Affective Cooptation," suggests scouring your network for "potentially influential organization members who are ambivalent about a change," i.e., fence-sitters. Coopting them increases the probability that the organization will adopt the change, according to the researchers. Look for the results in the April issue of Management Science.The Internet as crystal ball
A "big data" startup is the subject of a new case by Thomas H. Davenport. The company, Recorded Future, monitors hundreds of thousands of Web sources to make predictions about events, people, and entities. The case, "Recorded Future: Analyzing Internet Ideas About What Comes Next," watches CEO Christopher Ahlberg as he makes key decisions that will shape his own future.In revolt with the CEO
It's likely that many decisions made by CEOs are unpopular in the organization. In the new case "Wayne Ferrari: iAutomation at a Crossroads," the machine control firm's chief executive is having a bad day as he launches a new pricing model. "On 'go live' day, the sales force 'is up in arms' requesting that their 'special customer deals' be sheltered from this new system," according to the case. It also takes a broader look at Ferrari's past wins and new challenges as iAutomation continues to expand.The case was written by Jim Sharpe and Michael Norris.
— Sean SilverthornePublications
- Harvard Business Review Press
Abstract—How do you create your own definition of success-and reach your unique potential? Building a fulfilling life and career can be a daunting challenge. It takes courage and hard work. Too often, we charge down a path leading to "success" as defined by those around us-and ultimately, are left feeling dissatisfied. Each of us is unique and brings distinctive skills and qualities to any situation. So why is it that most of us fail to spend sufficient time learning to understand ourselves and creating our own definition of success? The truth is, it can seem so natural and so much easier to just do what everyone else is doing-for now-leaving it for later to develop our best selves and figure out our own unique path. Is there a road map that will enable you to defy conventional wisdom, resist peer pressure, and carve out a path that fits your unique skills and passions? Harvard Business School's Robert Steven Kaplan, leadership expert and author of the highly successful book What to Ask the Person in the Mirror, regularly advises executives and students on how to tackle these questions. In this indispensable new book, Kaplan shares a specific and actionable approach to defining your own success and reaching your potential. Drawing on his years of experience, Kaplan proposes an integrated plan for identifying and achieving your goals. He outlines specific steps and exercises to help you understand yourself more deeply, take control of your career, and build your capabilities in a way that fits your passions and aspirations. Are you doing what you're really meant to do? If you're ready to face this question, this book can help you change your life.
- Management Science
Abstract—We propose a relational theory of how change agents in organizations use the strength of ties in their network to overcome resistance to change. We argue that strong ties to potentially influential organization members who are ambivalent about a change (fence-sitters) provide the change agent with an affective basis to coopt them. This cooptation increases the probability that the organization will adopt the change. By contrast, strong ties to potentially influential organization members who disapprove of a change outright (resistors) are an effective means of affective cooptation only when a change diverges little from institutionalized practices. With more divergent changes, the advantages of strong ties to resistors accruing to the change agent are weaker, and may turn into liabilities that reduce the likelihood of change adoption. Analyses of longitudinal data from 68 multi-method case studies of organizational change initiatives conducted at the National Health Service in the United Kingdom support these predictions and advance a relational view of organizational change in which social networks operate as tools of political influence through affective mechanisms.Working Papers Innovation, Reallocation and Growth By: Acemoglu, Daron, Ufuk Akcigit, Nicholas Bloom, and William Kerr
Abstract—We build a model of firm-level innovation, productivity growth and reallocation featuring endogenous entry and exit. A key feature is the selection between high- and low-type firms, which differ in terms of their innovative capacity. We estimate the parameters of the model using detailed US Census micro data on firm-level output, R&D and patenting. The model provides a good fit to the dynamics of firm entry and exit, output and R&D, and its implied elasticities are in the ballpark of a range of micro estimates. We find industrial policy subsidizing either the R&D or the continued operation of incumbents reduces growth and welfare. For example, a subsidy to incumbent R&D equivalent to 5% of GDP reduces welfare by about 1.5% because it deters entry of new high-type firms. On the contrary, substantial improvements (of the order of 5% improvement in welfare) are possible if the continued operation of incumbents is taxed while at the same time R&D by incumbents and new entrants is subsidized. This is because of a strong selection effect: R&D resources (skilled labor) are inefficiently used by low-type incumbent firms. Subsidies to incumbents encourage the survival and expansion of these firms at the expense of potential high-type entrants. We show that optimal policy encourages the exit of low-type firms and supports R&D by high-type incumbents and entry.
Download working paper: http://www.people.hbs.edu/wkerr/AABK_130412.pdfExclusive Preferential Placement as Search Diversion: Evidence from Flight Search By: Edelman, Benjamin G., and Zhenyu Lai
Abstract—We analyze the incentives for a two-sided intermediary to divert consumers to its favored destinations. Applied to Internet search engines, we investigate a diversion mechanism based on Google's exclusive award of preferential placement to its own services. Using web traffic data from a quasi-experiment involving the introduction of Flight Search, a Google travel search service, we identify and measure the impact of diverting search away from non-paid algorithmic links to competing online travel agencies. Controlling for search intent, we find that Google's differential placement of Flight Search across similar search queries led to an 85% increase in click-through rates for paid advertising and a 65% decrease in click-through rates for non-paid algorithmic search links to competing online travel agencies. As search engines increase monetization of clicks by integrating specialized services into search results, our analysis suggests that exclusive preferential placement disproportionately impacts traffic to top sites most likely relevant to users' requests.
Download working paper: http://ssrn.com/abstract=2251294Diasporas and Outsourcing: Evidence from oDesk and India By: Ghani, Ejaz, William R. Kerr, and Christopher Stanton
Abstract—This study examines the role of the Indian diaspora in the outsourcing of work to India. Our data are taken from oDesk, the world's largest online platform for outsourced contracts, where India is the largest country in terms of contract volume. We use an ethnic name procedure to identify ethnic Indian users of oDesk in other countries around the world. We find very clear evidence that diaspora-based links matter on oDesk, with ethnic Indians in other countries 32% (9 percentage points) more likely to choose a worker in India. Yet, the size of the Indian diaspora on oDesk and the timing of its effects make clear that the Indian diaspora was not a very important factor in India becoming the leading country on oDesk for fulfilling work. In fact, multiple pieces of evidence suggest that diaspora use of oDesk increases with familiarity of the platform, rather than a scenario where diaspora connections serve to navigate uncertain environments. We further show that diaspora-based contracts mainly serve to lower costs for the company contacts outsourcing the work, as the workers in India are paid about the market wage for their work. These results and other observations lead to the conclusion that diaspora connections continue to be important even as online platforms provide many of the features that diaspora networks historically provided (e.g., information about potential workers, monitoring, and reputation foundations).
Download working paper: http://www.people.hbs.edu/wkerr/130331-OdeskDiaspora.pdfCases & Course Materials
- Harvard Business School Case 613-083
Recorded Future is a "big data" startup company that uses Internet data to make predictions about events, people, and entities. The company primarily serves government intelligence agencies, but has some private sector clients and is considering taking on more. The CEO, Christopher Ahlberg, is wrestling with several key decisions about where to take the company in the future.
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- Harvard Business School Case 113-027
Management of a company with extensive palm oil tree plantations questions the usefulness to management and investors of IAS41's requirement to value palm oil trees at their fair value.
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- Harvard Business School Case 313-107
Monique Leroux led a major transformation, overcoming resistance, at a large Canadian financial cooperative based in Quebec that competed with top Canadian banks. Leroux was elected in 2008 as Chairman, President, and CEO of Desjardins Group. In order to compete effectively in a demanding and changing financial services industry and survive the global financial crisis, Desjardins needed to integrate, consolidate, and determine how to preserve traditional values while preparing for the future and emerging as a less provincial financial group. In 2012 she reflected on the change efforts and the opportunities and challenges ahead.
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- Harvard Business School Case 813-120
Wayne Ferrari has bridged the gap between being an independent entrepreneur and a "professional manager." After selling his business to a Private Equity (PE) firm, Ferrari takes on the role of CEO and with their support implements a roll-up strategy to attain growth through acquisition in the mechanical controls distribution industry. Ferrari received support from the PE firm in negotiating and financing acquisitions but faced the challenging task of integrating them into the core business. Getting all the operations on a common IT platform proves more challenging than he expected. Developing an organization that supports a new strategy of application support for their customer base requires a change in culture and an evolving leadership challenge for the business. The most immediate challenge is to implement a "pricing" model to be used with all customers that takes into consideration a variety of customer specific characteristics to set optimal pricing for quotations. On "go live" day, the sales force "is up in arms" requesting that their "special customer deals" be sheltered from this new system. The case outlines a brief history of the business, the changes over the last six years and details on the challenges Ferrari faces as iAutomation continues to expand.
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Precise Offers Are Potent Anchors: Conciliatory Counteroffers and Attributions of Knowledge in Negotiations
In making opening offers, people generally use round numbers — listing a car for $10,000, instead of $10,125. New research by Professors Malia Mason and Daniel Ames and doctoral students Alice Lee and Elizabeth Wiley highlights the folly in this round number habit and reveals that negotiators can be more effective when they use precisely expressed opening offers. According to the researchers, the precision with which a negotiator conveys an opening offer — as $100 versus $98 or $102 — signals his or her confidence in its appropriateness. Negotiators who make precise first offers seem better informed of the good’s true value, and more credible offers tend to prompt more conciliatory responses from recipients.
Across a series of studies, the researchers found that precise offer makers received greater concessions and secured better final settlements than round offer makers. In fact, in some cases they found that a negotiator making a round offer ($50.00) fared better when she conceded on price and opened with a slightly less extreme but precise offer (for example, $49.75 if she was a seller; $50.25 if she was a buyer).
Although their research highlights the potential downsides of round first offers, the researchers acknowledge the possible risks in being precise. Just as overly extreme first offers lead to higher rates of avoidable impasses, overly precise first offers might signal inflexibility and prompt recipients to walk away from mutually beneficial deals.
The United States housing market is no longer the boat anchor dragging down economic growth. Data from the S&P/Case-Shiller Home Price Indices show that average home prices in an assortment of American cities have been on the upswing, increasing by almost 7 percent across the country in 2012. Recent reports that sales of new single-family homes rose in March are proof points that "the housing market recovery remains on track."
We asked Nicolas P. Retsinas to reflect on the re-emergence of the housing industry, what it means to the rental market, and the future of the mortgage interest tax deduction. Retsinas is a senior lecturer in real estate at Harvard Business School, director emeritus of Harvard University's Joint Center for Housing Studies, and former Federal Housing Commissioner.
Q: What factors have been contributing to the housing recovery?
Nicolas Retsinas: Several factors are generating a tailwind for the recovery, although it varies from market to market. In large measure it has to do with improvement in the economy as a whole, household formation (that is, children moving out of their parents' home in an improving job market), and abnormally low interest rates. Supply and demand, of course, always have an impact, with an additional element in select markets such as Phoenix, Las Vegas, and Southern California, where prices fell by half or more after the downturn and where financial firms like The Blackstone Group have been buying large numbers of single-family detached homes that they then rent, hoping to eventually sell them as an exit to their investment. This kind of institutional buying, however, is not happening as much in markets like Boston and New York, where prices did not fall so far and where there are not large numbers of foreclosed single-family homes. But all things considered, there is evidence that we may have turned the corner.
Q: How successful have been the Obama Administration's efforts to loosen credit for individual homebuyers?
A: It is, of course, much more difficult for individuals and families today to obtain credit than it was at the height of the housing boom. Now you need—surprise, surprise—documentation. Now you need to be employed. Now you need to have a down payment. All those things were absent during the housing boom. So we have tightened credit dramatically, which has contributed to the reality that this recovery has not been as robust as those in the past.
There are some mixed messages coming out of Washington as well. President Obama wants to accelerate the housing recovery, because it is such an important part of our economy and would help with the overall economic recovery. However, in the mortgage market today, ninety-five percent of all mortgage loans are guaranteed, insured, or securitized by the US government, which is obsessed with not losing money on these guarantees. And the way the government does not lose money is by making the requirements even more stringent for borrowers. So on the one hand, the political policy is to extend credit; on the other, the government-owned enterprises (Fannie and Freddie Mac) are trying to narrow the credit box because they so afraid of incurring a loss.
Q: Tax reform is high on the public agenda these days. What's your take on the viability of the mortgage interest deduction in the midst of calls to increase revenues and decrease loopholes?
A: First, let us put the mortgage interest deduction in historical context. It came about when the federal income tax became permanent in 1913. At that time, everything was deductible, including mortgage interest, a deduction that came to be accepted as a means to helping people achieve the "American dream" of owning a home. In 1986, however, that concept began to run into some opposition, when President Reagan put forth some proposals to simplify the tax code—eliminate deductions and just submit your income on the back of a postcard.
All this was met with a barrage of criticisms, primarily from two groups: charities concerned that it would undermine giving, and Realtors, home builders, and mortgage bankers, who were afraid that removing the mortgage interest deduction would lessen the incentive for buying a home. Bottom line, the deduction remained, but with one change. Instead of being unlimited, it was capped at a million dollars. As we look back at what happened with the housing market implosion, I think it's fair to say we over-encouraged and over-supported home ownership. A tax subsidy like the mortgage interest deduction, which reduces the amount of money available to the federal government by $100 billion a year, is understandably at risk today because of our concern with deficit reduction. To put this huge number in context, the total budget of the US Department of Housing and Urban Development, the primary agency for dealing with affordable housing in this country, is about $35 billion.
Realtors say the sky will fall if we end the mortgage interest deduction—that it would adversely affect the market and undermine home prices over time, but the evidence says that if one did this slowly, maybe lowered the cap, and changed it in a way that would be more supportive of first-time home buyers and those below a certain income, people would adjust. The mortgage interest deduction is a sacred cow, but I think that in an era when everybody is trying to look at the budget, there is some question as to whether the wealthy should continue to have a bite of that cow.
Q: Do you think more people these days are content to rent?
A: There have been a variety of surveys on the rent versus own question. A recent MacArthur Foundation survey said that more people regard renting as an acceptable option. But I saw another survey recently that concluded that two-thirds of American families preferred to own. I edited a book 15 years ago, Low income Home Ownership: Examining the Unexamined Goal, that supports the second finding. I found that the desire to own a home was part of the psyche of just about everyone I studied, no matter where they lived. The only exception was a nomadic tribe in North Africa that noted that "homes were graveyards for the living." But every other culture and country I looked at had a least nominal support for owning a home for the sake of things like family stability and the opportunity to pass one something of value to one's children.
With tightened credit in the mortgage market, renting has now become a desirable option, and for many young families, it is the only option, since they don't have the wherewithal for a down payment. But as rents go up in the face of increased demand, the difference between renting and owning will decrease. When that equilibrium happens, I suspect there will be a return to ownership as the preferred long-term option. Again, the question is: Can we design a system that will extend credit to young first-time homebuyers while not incurring too much risk. That is our challenge.
by Benjamin G. Edelman and Zhenyu Lai
Executive Summary — Measuring the net effect of search diversion is important for understanding the extent to which search engines and other intermediaries may act to influence consumer behavior. This paper makes two contributions. First, the authors develop a theoretical model to establish conditions when a search engine chooses to divert search to a less relevant service. Results indicate that search engines have a larger incentive to divert search when they are able to alter the consumers' perceptions of the difference between non-paid and paid placements, and when search engines place a large weight on revenue. These results are consistent with instances where some search engines have labeled paid links with confusing euphemisms or not at all, and where some search engines have mixed paid and non-paid links in the same area of the screen. Second, the authors measure the impact of a diversion mechanism where a search engine exclusively awards a non-paid preferred placement slot to its own service. Specifically, they examine Google's preferred placement of Flight Search. Analysis indicates that there was an 85 percent increase in click-through rates for paid advertising and a 65 percent decrease in click-through rates for non-paid algorithmic search traffic to competing online travel agencies. Both changes are statistically significant, providing evidence of Google's ability to influence how consumers choose services after they search. Key concepts include:
- There are significant cost increases for Internet startups that obtain large quantities of incoming traffic from search engines. These increases in costs could deter entry into thriving online industries.
- Search diversion particularly harms the sites that provide services most relevant to users' search queries.
We analyze the incentives for a two-sided intermediary to divert consumers to its favored destinations. Using a quasi-experiment to control for search intent, we identify and measure the impact of a search engine's exclusive award of preferential placement to its own service. We find that Google's differential placement of its Flight Search service led to a 65% decrease in click-through rates for non-paid algorithmic links and an 85% increase in click-through rates for paid advertising listings of competing online travel agencies. Moreover, the exclusive integration of search engine services into search results disproportionately impacted traffic to popular destinations.Paper Information
Boston College's greatest marketing campaign lasted about six seconds.
It's called the "Flutie Effect." In a 1984 game against the University of Miami, BC quarterback Doug Flutie threw a last-second "Hail Mary" pass 48 yards that was miraculously caught for a game-winning touchdown—a climactic capper on one of the most exciting college football games ever.
The play put BC on the map for college aspirants. In two years, applications had shot up 30 percent.
Ever since, marketing experts and school deans have acknowledged the power of the Flutie Effect's ability to transfer a successful collegiate athletic program into a hot ticket for admission. Georgetown University applications multiplied 45 percent between 1983 and 1986 following a surge of basketball success. Northwestern University applications advanced 21 percent after winning the Big Ten Championship in football.
"The primary form of mass media advertising by academic institutions in the United States is, arguably, through their athletic programs," says Harvard Business School Assistant Professor of marketing Doug J. Chung.
Oddly, little academic research has been done on the subject. And even some BC administrators would rather credit educational excellence than a gridiron miracle for its popularity among high-school graduates.
Enter Chung, whose recent research paper, The Dynamic Advertising Effect of Collegiate Athletics, shows how on-field heroics can benefit schools by increasing both the quantity and the quality of students they can expect to attract. The paper has been accepted for publication by the journal Marketing Science.
His findings include:
- When a school rises from mediocre to great on the gridiron, applications increase by 17.7 percent.
- To attain similar effects, a school has to either lower tuition by 3.8 percent or increase the quality of its education by recruiting higher-quality faculty, who are paid 5.1 percent more than their average peers in the academic labor market.
- Students with lower-than-average SAT scores tended to have a stronger preference for schools known for athletic success, while students with higher SAT scores preferred institutions with greater academic quality. Also, students with lower academic prowess valued the success of intercollegiate athletics for longer periods of time than the high SAT achievers.
- Even students with high SAT scores are significantly affected by athletic success—one of the biggest surprises from the research, Chung says.
- Schools become more academically selective with athletic success.
Although a boost in applications is a good outcome, there are a variety of other reasons why schools invest in sports. A primary reason, says Chung, is to further the NCAA's commitment to diversity and morale. Schools also build sports programs because it can be financially beneficial to do so—intercollegiate sporting events generated an estimated $2 billion in revenue and $1 billion in profit in 2010. Winning programs prosper in diverse ways including ticket and product sales, alumni donations, and TV contracts. Chung is currently studying the effect of winning on revenues.
The rise in application interest, the subject of the current research, is probably the tertiary reason. "I am hesitant to say schools choose to invest in athletics just because of the spillover effect into academics," Chung says.
Why would sports success spark greater admissions interest, even among academically superior students? Although not part of the study, Chung guesses that a school's fame in athletics increases general awareness of those institutions—brand advertising, if you will. Another reason: sports-heavy American culture. Prospective students might find it appealing to be part of a college's social whirl around a winning program.
Chung was naturally attracted to the research because the Flutie game was the first American football game he'd ever watched. "I saw this game live on TV with my father when I was growing up in Kansas," he says, "and have been a big fan ever since."About the author
Sean Silverthorne is editor-in-chief of Harvard Business School Working Knowledge.