- 14 Mar 2007
- Op-Ed
Government’s Misguided Probe of Private Equity
The U.S Department of Justice has begun an inquiry into potentially anti-competitive behavior on the part of leading private equity firms. Professor Josh Lerner looks to history to underscore why this move carries the prospect of damaging what is actually an incredibly competitive industry that creates much value. Key concepts include: The Justice Department, which has little understanding of the nuances of the private equity business, could repeat missteps of the past by mistaking competition for collusion. Deal sharing, in the crosshairs of the inquiry, actually helps investors make better investment decisions, helps companies' managements, and helps limit risk. The benefits to society from widespread venture syndication appear to substantially outweigh the costs. Washington must understand that the many benefits private equity provides by facilitating economic growth are unlikely to be sustained if the heavy hand of government intrudes, whether through litigation or regulation. Closed for comment; 0 Comments.
- 02 Mar 2007
- What Do You Think?
What Is the Government’s Role in US Health Care?
Healthcare will grab ever more headlines in the U.S. in the coming months, says Jim Heskett. Any service that is on track to consume 40 percent of the gross national product of the world's largest economy by the year 2050 will be hard to ignore. But are we addressing healthcare cost issues with the creativity they deserve? What do you think? Closed for comment; 0 Comments.
- 28 Feb 2007
- Research & Ideas
Capital Rules: The Tensions of Global Finance
With the start of the new decade, most global financial powers are rethinking a previously powerful trend toward liberalizing global finance. In his new book Capital Rules, Professor Rawi Abdelal charts the intellectual, legal, and political history of financial globalization, and the tensions facing today's world economy. Read an excerpt. Key concepts include: The year 1998 was the closest the world has come to establishing a consensus that capital's right to freedom applies always and everywhere. The world looks different to most financial policymakers in the twenty-first century, with many regions, and the United States in particular, adopting ad hoc measures that benefit their own interests but ignore the lessons learned from financial crises in the 1920s and 1930s. The European Commission is the only recognized international financial authority to support complete, unqualified capital mobility. Closed for comment; 0 Comments.
- 26 Feb 2007
- Research & Ideas
The Power of the Noncompete Clause
Noncompete clauses seem nearly universal—and not just in technology companies. But the effect is especially strong on specialist and "star" inventors, according to new research by Harvard Business School's Matt Marx, Deborah Strumsky, and Lee Fleming. Marx reflects on the business and career implications in this Q&A. Key concepts include: Noncompete clauses may be ubiquitous or nearly so, particularly in venture-funded companies, but not everyone is affected identically by noncompetes. Fundamentally, noncompetes are a form of monopoly. Just as a patent allows a monopoly on a technique or tool for a limited amount of time, a noncompete (if enforced) affords a temporary monopoly of sorts on a person. In Michigan, inventors whose patents are highly cited in other patent applications were less likely to change jobs following a change in the state law. The effect for "specialist" inventors was even stronger. Star or specialist inventors wishing to explore career opportunities may need to look outside a state that enforces noncompetes. From an employer's perspective, keep in mind that noncompetes are far from ironclad. Closed for comment; 0 Comments.
- 09 Feb 2007
- Working Paper Summaries
Do Corporate Social Responsibility Ratings Predict Corporate Social Performance?
Ratings of corporations' environmental activities and capabilities influence billions of dollars of "socially responsible" investments as well as consumers, activists, and potential employees. But how well do these ratings predict socially responsible outcomes such as superior environmental performance? Companies can enhance their environmental image in one of two ways: by reducing or minimizing their impact on the environment, or by merely appearing to do so via marketing efforts or "greenwashing." This study evaluates the predictive validity of environmental ratings produced by Kinder, Lydenberg, Domini Research & Analytics (KLD), and tests whether companies that score high on KLD ratings generate superior environmental performance or whether highly rated firms are simply superior marketers of the factors that these rating agencies purport to measure. The data analysis examines all 588 large, publicly-owned companies in the United States that were both regulated by the U.S. Environmental Protection Agency and whose social performance was rated by KLD at least once during 1991-2003. This paper may be the first to examine the predictive validity of social or environmental ratings. Key concepts include: KLD ratings for environmental "concerns," such as hazardous waste and regulatory problems, have small but statistically significant effects in predicting future emissions and regulatory violations. KLD ratings for environmental "strengths," such as environmentally beneficial products or pollution prevention, do not predict future environmental outcomes. Most, but not all, of the predictive power of KLD ratings is due to the fact that lagged emissions and regulatory violations predict both lagged KLD ratings and future emissions and regulatory violations. KLD expends substantial resources attempting to measure the quality of companies' environmental management systems. The results suggest that this measurement is difficult to do well. Closed for comment; 0 Comments.
- 02 Feb 2007
- Working Paper Summaries
Do Employment Protections Reduce Productivity? Evidence from U.S. States
Business leaders and policymakers often claim labor market rigidities reduce productivity and competitiveness by altering production choices from their unconstrained best. These theories are tested using the adoption of employment protection regulations by U.S. state courts over the last three decades. Consistent evidence is found following the introduction of the employment regulations that 1) firm production choices are altered, 2) firm employment turnover declines, and 3) firm productivity declines. Entrepreneurship rates also decline in the states after the court decisions. The interpretation of the results, however, is somewhat clouded by very large employment growth that follows the regulations too. Key concepts include: Employment protection regulations lead to reductions in firm employment changes. These regulations are also associated with lower firm productivity and entry rates, consistent with the regulations distorting production choices. These results require further verification as the employment growth following the regulations appears implausibly large. Closed for comment; 0 Comments.
- 01 Feb 2007
- Working Paper Summaries
Noncompetes and Inventor Mobility: Specialists, Stars, and the Michigan Experiment
Two years ago, Microsoft and Google wrangled publicly when Google hired away a star Microsoft employee who had signed an agreement not to compete against Microsoft for one year after leaving the company. Managers enjoy a love/hate relationship with such "noncompete" covenants depending on whether they are gaining or losing talent. This study, which looks at Michigan's inadvertent reversal of its enforcement policy in the mid-1980s, is the first to apply longitudinal analysis to the question of noncompete enforcement. Given the importance of mobility for knowledge spillovers and entrepreneurship, the evidence has implications for day-to-day behavior, careers, business, and policy. Key concepts include: "Stars"—highly cited and specialist inventors—experienced significantly less career mobility once noncompetes began to be enforced. The networks of small companies so crucial to Silicon Valley's growth would be less likely to develop in regions that enforce noncompetes. Policy planners must decide when the interests of incumbent firms outweigh those of individual careers and possibly regional development. Closed for comment; 0 Comments.
- 31 Jan 2007
- Working Paper Summaries
Behavioral Decision Research, Legislation, and Society: Three Cases
Insights about how people make decisions have enormous importance for society and public policy, yet often behavioral decision findings are overlooked or dismissed in favor of arguments based on sometimes-simplistic economic theory. This is particularly true in Washington, D.C., where Bazerman provided expert testimony in government cases on auditor bias, pharmaceutical company collusion, and big tobacco, respectively. His experiences highlight the barriers to the use of the most appropriate social science under the existing legal and legislative frameworks. In this article that is based on analysis and opinion, he tells what happened and reflects on the need for social sciences, in addition to economics, to be brought to the legal and policy-making domains. Key concepts include: Economic logic lies behind preventable disasters that range from accounting scandals to the many avoidable deaths resulting from the U.S. organ donation system. Creating wise policies in society means updating our understanding of unconscious or unintentional processes in decision making and recognizing how social science today is based on rigorous science. Economic logic plays an important role in the policy-making process, but it should not be used at the expense of other social science knowledge. A smoking gun is not necessary to show that an institution is set up to encourage wrongdoing. For behavior-decision reasons, organizations are likely to prefer a status quo. Too often, when it comes to public policy, the status quo either prevails or inappropriately influences future activity. Closed for comment; 0 Comments.
- 22 Jan 2007
- Research & Ideas
The Immigrant Technologist: Studying Technology Transfer with China
Immigrants account for almost half of Ph.D.-level scientists and engineers in the U.S., and are prime drivers of technology development. Increasingly, however, Chinese technologists and entrepreneurs are returning home rather than staying in the U.S. to pursue opportunities. Professor William Kerr discusses the phenomena of technology transfer and implications for U.S.-based businesses and policymakers. From New Business. Key concepts include: The trend of Chinese technologists and entrepreneurs returning home rather than staying in the U.S. is a trend that potentially offers both harm and opportunity to U.S.-based interests. Immigrants account for almost half of Ph.D.-level scientists and engineers in the U.S. and are strong contributors to American technology development. It is in the United States' interest to attract and retain this highly skilled group. U.S. multinationals are placing larger shares of their R&D into foreign countries, around 15 percent today. U.S.-based ethnic scientists within multinationals help facilitate the operation of these foreign direct investment facilities in their home countries. Closed for comment; 0 Comments.
- 10 Jan 2007
- HBS Case
The Challenge of Managing National Security
What can we learn from mistakes made in managing national intelligence before 9/11? Professor Jan Rivkin discusses the difficulties of integrating a highly differentiated organization, and the dangers of overcentralizing decision making. From HBS Alumni Bulletin. Key concepts include: The issues around managing national security provide an extreme example of the challenges faced by organizations that break into specialized parts yet must get the parts to work together. While private sector organizations can roll out complex changes over time, the intelligence community must change quickly—it must be patient and impatient at the same time. In the highly turbulent field of national security, a single "intelligence czar" could be quickly overwhelmed by informational burdens, and oversight groups can bury talented individuals under bureaucracy. The Director of National Intelligence should serve as a centralized provider of leadership and infrastructure that allows both decentralized and coordinated action. Closed for comment; 0 Comments.
- 08 Jan 2007
- Research & Ideas
Who Rises to Power in American Business?
Business leaders in the United States have usually been white men who were blessed with the right religion, family, or education. But "outsiders" have also created their own paths to leadership, a trend on the rise today. Paths to Power is the first book in fifty years to exhaustively analyze the demographics of leadership and access in business in the U.S., and how the face of American leadership might be changing. A Q&A with Anthony J. Mayo. Key concepts include: Paths to power in American business have followed two tracks: The inside track favors white males with the right connections. The outside path is forged by individuals who overcome significant odds to achieve success. Over the last seventy-five years, education has become more critical in creating a path to power; religion and family ties less so. Access to power appears to be widening. In the future, individuals who can operate and lead in a complex global world will be at an advantage in gaining leadership positions. Closed for comment; 0 Comments.
- 06 Dec 2006
- Op-Ed
India Needs to Encourage Trade with China
Although India and China have increased bilateral trade over the last five years, the amount is far less than what would be expected. Harvard Business School professor Tarun Khanna says India has primarily itself to blame. From The Economic Times. Key concepts include: China and India recorded $19 billion in bilateral trade in 2005, much less than would be expected of countries similar in size, within geographic proximity, and with shared cultural ties. Indians' fears about Chinese competition and unease over past border wars result in procedural and other roadblocks to increased trade, at India's disadvantage. China benefits from the trade more than India, both by selling more and better products to India and by welcoming Indian investment in China. Closed for comment; 0 Comments.
- 22 Nov 2006
- Research & Ideas
CEO Succession: The Case at Ford
When Ford Motor Company looked to replace Bill Ford as CEO, it turned not to another auto industry insider but instead to Boeing's Alan Mulally. We talk with Harvard Business School professor Joseph L. Bower to better understand Ford's move and the larger issues of CEO succession. Key concepts include: New CEOs are often plucked from outside the company—about a third of the time for S&P 500 companies. Industry knowledge isn't a specific determinant of a new CEO's success, but knowledge of the business is crucial—see Lou Gerstner at IBM. Companies need to plan CEO succession ten years in advance—not react to an immediate situation. Closed for comment; 0 Comments.
- 09 Nov 2006
- Research & Ideas
Andy Grove: A Biographer’s Tale
Podcast: For Harvard Business School professor Richard S. Tedlow, Intel co-founder Andy Grove is one of the most important and intriguing CEOs in American business history. In this interview, Tedlow discusses his new biography, Andy Grove: The Life and Times of an American with Jim Aisner. Closed for comment; 0 Comments.
- 29 Oct 2006
- Research & Ideas
The History and Influence of Andy Grove
Richard S. Tedlow discusses his research on Silicon Valley legend Andy Grove and how he altered much more than the chip industry. Closed for comment; 0 Comments.
- 23 Oct 2006
- Research & Ideas
Will the “Long Tail” Work for Hollywood?
The "long-tail phenomenon" is well documented: Amazon.com makes significant profits selling many low-volume books. But can the long tail work for video sales as well? A new working paper by professors Anita Elberse and Felix Oberholzer-Gee suggests that it may not bring the same benefits to Hollywood. Key concepts include: For video sales, the long-tail phenomenon is not as pronounced at it is for books. There is evidence of a shift in sales to the tail for video, but an increasing number of titles do not sell at all. Hollywood strategists have no easy answers for pumping up revenue, given a decline in the number of blockbuster hits. This new research suggests that the long-tail phenomenon might not be a panacea for video sales. The music industry may be more of a long-tail beneficiary than the movie industry. Closed for comment; 0 Comments.
- 11 Oct 2006
- Research & Ideas
U.S. Tops Business Competitiveness Index 2006
The United States and Germany continue to top an annual review of the business competitiveness of 121 countries, which is compiled by Professor Michael Porter's Institute for Strategy and Competitiveness at Harvard Business School. While India climbed in the rankings, China fell. Key concepts include: The Business Competitiveness Index measures the underpinnings of a country's prosperity. While a nation's macroeconomic factors are often considered fundamental to long-term prosperity, productivity depends on microeconomic factors such as the level of company sophistication and quality of the business environment. Unless microeconomic capabilities improve, sustainable improvements in prosperity will not occur. Closed for comment; 0 Comments.
- 28 Sep 2006
- Working Paper Summaries
Scale without Mass: Business Process Replication and Industry Dynamics
Over the past ten years there's been a clear link between IT investment and productivity growth in the U.S. economy. But what impact has IT had on competition? This paper identifies several recent changes in the competitive dynamics of U.S. industries and shows that they are associated with IT intensity; the more IT and industry has, the greater the changes. Using case studies, previous research, and a simple model, the authors offer a theory that explains these patterns in the data. They argue that IT allows the rapid spread of business process innovations, which in turn leads to more turbulent and concentrated industries. Key concepts include: Since the mid-1990s, IT-intensive industries have seen higher levels of turbulence and concentration growth than have non-IT-intensive industries. The improved ability of firms to replicate business innovations affects not only productivity, but also the nature of business competition itself. Future research on the competitive impact of IT within a single industry could use case studies combined with economy-wide data analysis. This method would help clarify the impetus for technology investments, their timing, and their effects. Closed for comment; 0 Comments.
- 21 Aug 2006
- Research & Ideas
How Europe Wrote the Rules of Global Finance
Following decades of liberalization, controls on cross-border capital movements are again being discussed by financial institutions, governments, and policymakers around the globe. Professor Rawi Abdelal discusses implications and the historical roles of Europe and the United States in promoting the flow of capital across national borders. Key concepts include: European policymakers, particularly the French, created regulations and enforcement that govern the majority of the world's capital flows. The U.S. has followed an ad hoc approach to capital liberalization, with no evidence it supported a liberal international financial regime. The trend toward liberalization and a lessening of capital controls on worldwide finance appears to be on the wane. Closed for comment; 0 Comments.
Handicapping the Best Countries for Business
India? South Africa? Russia? Which are the best countries for a firm to invest in? In a new book, Professor Richard Vietor looks at the economic, political, and structural strengths and weaknesses of ten countries and tells readers how to analyze the development of these areas in the future. Read our Q&A and book excerpt. Key concepts include: Governments create the overall environment for successful competition in the global economy. Bad government can only lead to less competitive businesses. To be competitive, countries need to offer businesses sound fiscal and monetary policies, secure property rights, high savings and investment, an absence of corruption, and exports that are competitive in enough areas to eventually balance imports. Business people must understand where markets and countries are headed by analyzing the present and then extending current performance trends forward three to five years. Although each has issues, Singapore, China, and India are currently the best bets for FDI and, pending political stability, so is Russia. Closed for comment; 0 Comments.