Organizations →
- 23 Jun 2010
- Working Paper Summaries
The Role of Institutional Development in the Prevalence and Value of Family Firms
Family firms dominate economic activity in most countries, and are significantly different from other companies in their behavior, structural characteristics, and performance. But what explains the significant variation in the prevalence and value of family firms around the world? The two leading explanations are legal investor protection and institutional development, but cross-country studies are unable to rule out the alternative explanation that cultural norms are what account for these differences. In contrast, China provides an excellent laboratory for addressing this question because it offers great variation in institutional efficiency across regions, yet the country as a whole shares cultural and social norms together with a common legal and regulatory framework. In this paper, HBS professor Belén Villalonga and coauthors study ownership data from a sample of nearly 1,500 publicly listed firms on the Chinese stock market. They conclude that institutional development plays a critical role in the prevalence and value of family firms, and that the differences observed across regions are not attributable to cultural factors. Key concepts include: Family firms do not inhibit growth and development, as is sometimes argued. This seems clear due to the relatively higher prevalence of family firms even in regions with high institutional efficiency. The effects of family, ownership, control, and management in China are remarkable similar to those found by professor Villalonga in her earlier research based on U.S. data. Namely, family ownership is positively related to value, family control in excess of ownership is negatively related to value, and family management, when exercised by the firm's founders as is primarily the case in China, is positively related to value. However, in China these effects are largely driven by the low institutional efficiency regions. In the high efficiency regions, none of these effects are significant. These findings are particularly relevant for China as it continues its transition from a central planning system to a market economy. On average, family firms are significantly smaller, younger, and less capital-intensive than non-family firms. Yet they exhibit significantly lower systematic risk, and they are not significantly different from non-family firms in their growth and leverage. Closed for comment; 0 Comments.
- 16 Jun 2010
- Working Paper Summaries
Does Diversification Create Value in the Presence of External Financing Constraints? Evidence from the 2008-2009 Financial Crisis
The global financial crisis of 2008-2009 has led academics and practitioners to question many widely held beliefs about business and economics. One such belief relates to the value of corporate diversification. Popular views about diversification have swung like a pendulum over the past half-century, from a generally positive view in the 1960s and 1970s, when many large conglomerates were formed, to a generally negative view in the 1980s and early 1990s, when many such conglomerates were dismantled or at least fell out of the stock market's favor. In 2009, in the wake of the global financial crisis, a new view seems to be emerging that conglomerates are ready for a comeback. In this paper, HBS doctoral candidate Venkat Kuppuswamy and professor Belén Villalonga examine whether and why conglomerates have become more valuable during the 2008-2009 financial crisis. They find that they have, and that the increase does not simply reflect changes in investor perceptions but real differences in corporate finance and investment. Key concepts include: The change in the value of diversification triggered by the financial crisis reflects real differences in corporate finance and investment as opposed to a faddish change in investor sentiment or perceptions. There were two channels through which the financial crisis increased the intrinsic value of corporate diversification: greater access to credit markets as a result of the debt coinsurance provided by conglomerates, and access to (and/or more efficient use of) internal capital markets. While these financing alternatives are always available to diversified firms, evidence suggests that they became particularly valuable during the crisis. It remains to see whether the value advantage gained by conglomerates during the crisis will persist or disappear once the crisis is over. On the one hand, as credit becomes cheaper and more broadly available, both diversified and focused firms are likely to revert to their equilibrium leverage levels. The value of internal capital markets is also likely to decline as external capital markets return to their pre-crisis levels of efficiency and availability—partly because of the increased efficiency of external markets and partly because of the reduced pressure to allocate internal funds efficiently. On the other hand, the financing advantage that conglomerates have enjoyed during the crisis may have allowed them to tackle unique investment opportunities that can give them a sustainable competitive advantage over their focused rivals—or even put some of those rivals out of business. While it is too early for us to be able to analyze in this study some of these long-term effects, the shift in the relative pricing of diversified and single-segment firms suggests that the stock market anticipates that the advantage gained by conglomerates will last well beyond the crisis. Closed for comment; 0 Comments.
- 14 Jun 2010
- Research & Ideas
The Hard Work of Measuring Social Impact
Donors are placing nonprofits on the hot seat to measure social performance. Problem is, there is little agreement on what those metrics should be. Professor Alnoor Ebrahim on how nonprofit managers should respond. Closed for comment; 0 Comments.
- 02 Jun 2010
- What Do You Think?
How Do You Weigh Strategy, Execution, and Culture in an Organization’s Success?
Summing up: Respondents who ventured to place weights on the determinants of success gave the nod to culture by a wide margin, says HBS professor Jim Heskett. (Online forum now closed. Next forum opens July 2.) Closed for comment; 0 Comments.
- 18 Mar 2010
- Working Paper Summaries
Matching Firms, Managers, and Incentives
Do different kinds of firm ownership drive the adoption of different managerial practices? HBS professor Raffaella Sadun and coauthors focus on the difference between the two most common ownership modes, family firms and firms that are widely held, namely that have no dominant owner. They find that the greater weight attached by family firms to benefits from control induces a conflict of interest between family-firm owners and high-ability, risk-tolerant managers. Key concepts include: Family firms systematically offer low-powered incentive contracts to external managers compared with widely held firms. The differences are economically large. Where incentives are more powerful, managers exert more effort, are paid more, and are more satisfied. Firms that offer high-powered incentives are associated with better performance. This result holds even after controlling for the type of ownership. Economies where family firms prevail because of institutional or cultural constraints are also economies where the demand for highly skilled, risk-tolerant managers languishes. Closed for comment; 0 Comments.
- 17 Mar 2010
- Working Paper Summaries
Conceptual Foundations of the Balanced Scorecard
This article documents the precursors of the Balanced Scorecard (BSC) strategic performance management tool and describes the evolution of the BSC since its introduction in 1992 in the Harvard Business Review. During the last 15 years, the BSC has been adopted by thousands of private, public, and nonprofit enterprises around the world. HBS professor Robert S. Kaplan, who created the concept and tool with David Norton, explains the roots and motivation for their original article as well as subsequent innovations that connect it to a larger management literature. Key concepts include: The BSC was not original for advocating that nonfinancial measures be used to motivate, measure, and evaluate company performance. Early pioneers included General Electric, Nobel Economics Laureate, Professor Herb Simon, at the Carnegie Institute of Technology (later Carnegie-Mellon University), and management theorist Peter Drucker in his now-classic book, The Practice of Management in the 1950s. The BSC differs from stakeholder theory by embedding stakeholder interests within a strategy framework. It also extends the economics-based agency theory by offering the instrumentation to guide a multi-period shareholder value creation process. The BSC continues to grow and evolve. Future developments will, for example, formally embed enterprise risk management into the strategy execution framework. Closed for comment; 0 Comments.
- 05 Mar 2010
- Working Paper Summaries
Will I Stay or Will I Go? Cooperative and Competitive Effects of Workgroup Sex and Race Composition on Turnover
Inequalities in the senior ranks by sex and race remain rampant in up-or-out knowledge organizations such as consulting firms, law firms, and universities. HBS professor Kathleen L. McGinn and Wharton School professor Katherine L. Milkman focus on patterns of voluntary and involuntary turnover over six years in one such organization to untangle the multiple ways in which social identity influences career mobility. Predicting that higher proportions of demographically similar supervisors will reduce the likelihood of subordinate turnover, while higher proportions of demographically similar peers will increase the likelihood of turnover, the researchers find evidence of the hypothesized effects. They suggest that integrating research about social cohesion and social comparison enhances understanding of racial and gender inequality within organizations and facilitates organizations' ability to reduce that inequality. Key concepts include: Senior sponsorship is vital for junior professionals in up-or-out organizations. To address the problem of persistent underrepresentation of women and minorities at the highest levels, knowledge organizations need to attend to the ways in which policies and practices invoke competition, rather than social cohesion, among demographically similar peers. Clustering same race or same sex junior employees to provide an increased sense of community may have the opposite effects of those desired unless accompanied by similar or greater increases in the diversity of senior professionals. Studies of organizational sex composition and career mobility need to consider effects at multiple levels. Closed for comment; 0 Comments.
- 03 Mar 2010
- What Do You Think?
To What Degree Does “Identity” Affect Economic Performance?
Summing up comments to his March column, Jim Heskett says perceptions vary widely on the issue of "identity" and economic performance, particularly as it applies to the U.S. What will it take to turn around negative trends in employee identity? (Forum now closed. Next forum begins April 2.) Closed for comment; 0 Comments.
- 22 Feb 2010
- Research & Ideas
Manager Visibility No Guarantee of Fixing Problems
Managers who merely put in time "walking the floor" are not doing enough when it comes to problem solving; in fact, it can make employees feel worse about their situation, says HBS professor Anita Tucker. Key concepts include: Communicating with frontline workers can backfire if managers make only a token effort to resolve issues. Identifying more problems is not necessarily better if the organization then ignores the majority of the concerns. Solving issues as they arise with intense and substantive actions is more productive in creating a climate where it is clear that the manager is concerned. Closed for comment; 0 Comments.
- 18 Feb 2010
- Working Paper Summaries
The Mirroring Hypothesis: Theory, Evidence and Exceptions
In its simplest form, the mirroring hypothesis suggests that the organizational patterns of a development project, such as communication links, geographic collocation, and team and firm membership, correspond to the technical patterns of dependency in the system under development. According to the hypothesis, independent, dispersed contributors develop largely modular designs, while richly interacting, collocated contributors develop highly integral designs. Yet many development projects do not conform to the mirroring hypothesis. HBS doctoral graduate Lyra Colfer and professor Carliss Y. Baldwin synthesize observations from a large number of cases that violate the hypothesis to explain when and how development organizations can "break the mirror." Key concepts include: While mirroring is common in practice, it is not universal. In the presence of compatible motivations and frameworks supporting expectations of good faith, there are new ways of building common ground, based on digitized designs; electronic archives; automated test suites; and instantaneous transmission of text, data, and pictures. These alternative means can be used as complements or substitutes for mirrored forms of organization. Managers of development organizations within and across firms and in open collaborative groups, who choose or are required by circumstances to "break the mirror," should be aware of these alternative means of achieving coordination. Closed for comment; 0 Comments.
- 16 Feb 2010
- Research & Ideas
The Outside-In Approach to Customer Service
Ranjay Gulati, an expert on leadership, strategy, and organizational issues in firms, describes how companies can evolve through four levels to become more customer-centric. Plus: Book excerpt from Reorganize for Resilience: Putting Customers at the Center of Your Business. Open for comment; 0 Comments.
- 03 Feb 2010
- Working Paper Summaries
Accountability and Control as Catalysts for Strategic Exploration and Exploitation: Field Study Results
The need for organizations to both exploit current resources and explore new opportunities is a central and long-standing theme in the literature of organizations. The challenge, of course, is that these two imperatives require very different structures and skills. Exploitation demands a focus on efficiency and effectiveness in executing preset plans and procedures. Exploration requires the ability to step outside these routines by emphasizing experimentation, creativity, and novelty. In this study, HBS professor Robert L. Simons focuses on the relationship between two organization design variables—span of control and span of accountability. Using data from 102 field studies, he illustrates how these variables can be manipulated by managers to tilt the balance toward either exploration or exploitation in response to different tasks, different organizational contexts, and changing competitive environments. Key concepts include: Managers can fine-tune their organization along the dimensions of exploitation and exploration more easily than we may have suspected. For these situations, accountability and control can be adjusted to create an opening for entrepreneurship. It is the tension between the resources allocated by organizational architecture and accountability for those resources that provides a powerful catalyst for strategic exploitation and exploration. Most of the research on exploration and exploitation has focused on design architecture (centralization/decentralization, internal venture groups, alliances) and related organizational coordinating mechanisms. We must remember, however, that these structures are merely tools to affect the behavior of individuals. It is individuals, in the end, who must devote their energy and attention to either exploiting current resources or exploring new opportunities. Closed for comment; 0 Comments.
- 28 Jan 2010
- Working Paper Summaries
Does Product Market Competition Lead Firms To Decentralize?
There is a widespread sense that over the last two decades firms have been decentralizing decisions to employees further down the managerial hierarchy. Economists have developed a range of theories to account for delegation, but there is less empirical evidence, especially across countries. This has limited the ability to understand the phenomenon of decentralization. Nicholas Bloom, HBS professor Raffaella Sadun, and John Van Reenen assembled a new data set on about 4,000 firms across 12 countries in Europe, North America, and Asia, and then measured the delegation of authority from central headquarters to local plant managers. Key concepts include: Competition is associated with a greater degree of delegation. One of the reasons for the move toward decentralization over time in developed countries may be increasing competition, possibly arising from more globalized product markets. A reason for greater centralization in less developed countries may be lower competitive intensity. Closed for comment; 0 Comments.
- 21 Jan 2010
- Working Paper Summaries
Going Through the Motions: An Empirical Test of Management Involvement in Process Improvement
How can managers better lead their organizations to improve work processes? Describing their study of hospitals over an 18-month period, HBS professor Anita L. Tucker and Harvard School of Public Health professor Sara J. Singer detail how and why managers' taking action was more effective than their communicating about actions taken. Findings suggest, first, that taking action on known problems in specific work areas on at least a quarterly basis may improve the organizational climate for improvement. Second, the study indicates that managers would be well advised to take action-preferably substantive and intense action-in response to frontline workers' communications about problems. Overall, the research provides insight for senior managers who want to improve their organization's climate for process improvement. Key concepts include: Resolving a small number of problems is better than collecting data about many problems. Giving feedback to employees about actions taken can worsen their perceptions of the climate for improvement if the actions were superficial or punitive. In other words, managers do not fool frontline workers by going through the motions of process improvement. The risk of surfacing a large number of problems is twofold: (1) identifying many problems simultaneously may overwhelm people with a new awareness of the full extent of problems within the organization, complicating and slowing decision processes and spreading already-stretched resources, and (2) it may reinforce cynicism among frontline workers that managers are uncommitted to improving the organizations' work systems. Closed for comment; 0 Comments.
- 07 Jan 2010
- Working Paper Summaries
International Differences in the Size and Roles of Corporate Headquarters: An Empirical Examination
Are small headquarters more nimble and efficient than large ones? Not necessarily, according to HBS adjunct professor David Collis and coauthors David Young and Michael Goold. Even within a single industry in one country, the variance can be enormous: In Germany in the late 1990s, for instance, Hoechst, the chemical and pharmaceutical manufacturer, had only 180 people in the headquarters function at the same time that Bayer had several thousand. This paper seeks to fill gaps in the research by using a unique database of over 600 companies in seven countries to determine whether systematic differences in the size and roles of corporate headquarters between countries actually exist, and if so, how they differ. In particular, the authors examine whether there is a systematic difference between market- and bank-centered economies, and between developed and developing countries. Key concepts include: Contrary to popular expectations, corporate headquarters in the United States are about twice the size of European counterparts yet appear to be more effective. It is not universally valuable to have small corporate headquarters. While companies with small headquarters can be successful, it is clear that larger headquarters can also be correlated with high performance and executive satisfaction with their role and cost- effectiveness. Japanese headquarters are substantially larger than elsewhere—a factor of nearly four times Europe. However, those headquarters are becoming smaller because of dissatisfaction with their performance. The developing country model of headquarters appears to fit none of the developed country models. There is no "market-centered" and "bank-centered" model of corporate headquarters, suggesting that at the level of key corporate decisions, other phenomenon have important independent influences. The size and role of corporate headquarters vary widely both between countries and within countries. There is more variation within each country than there is between countries. Closed for comment; 0 Comments.
- 23 Nov 2009
- Research & Ideas
Management’s Role in Reforming Health Care
Health care managers are the missing link in debate over reform. Their skills and ideas are needed to sustain and improve upon multiple advances in the delivery of health care for the benefit of patients. An interview with HBS professor Richard M.J. Bohmer, MD, and an excerpt from his book Designing Care: Aligning the Nature and Management of Health Care. Key concepts include: Many health-care delivery issues are managerial rather than policy issues. Much debate on the U.S. stage assumes the current health-care delivery system is a given. Yet innovations in care delivery could potentially help patients and the U.S. health-care system overall. Bohmer's book explains how to create more knowledgeable, flexible, and responsive delivery organizations. Routine medical practice is a fertile source of innovations in care, in both what to do and how to do it. Closed for comment; 0 Comments.
- 12 Nov 2009
- Working Paper Summaries
Walking Through Jelly: Language Proficiency, Emotions, and Disrupted Collaboration in Global Work
As organizations increasingly globalize, individuals are required to collaborate with coworkers across international borders. Many organizations are mandating English as the lingua franca, or common language, regardless of the location of their headquarters, to facilitate collaboration across national and linguistic boundaries. What is the emotional impact of lingua franca adoption on native and nonnative speakers who work closely together and often across national boundaries? This study examines the communication experience for native and nonnative English speakers in an organization that mandates English as the lingua franca for everyday use, and the impact of the lingua franca on collaboration among globally distributed coworkers. HBS professor Tsedal Neeley and coauthors describe in detail how emotions and actions were intertwined and evolved recursively as coworkers attempted to release themselves from unwanted negative emotions and inadvertently acted in ways that transferred negative experiences to their distant coworkers. Their findings have implications for managers who are charged with overseeing internationally distributed projects. Key concepts include: Disparities in English language proficiency were a major challenge for workers in the study. These disparities not only disrupted information sharing, they often triggered a cycle of negative emotional responses that interfered with collaborative relationships on the teams. It is important that workers engage in perspective taking with the goal of understanding the experiences and constraints of their colleagues. Building awareness of the experiences of coworkers with different language backgrounds and proficiencies and empathizing with those experiences can circumvent the negative cycle. Closed for comment; 0 Comments.
- 07 Oct 2009
- Working Paper Summaries
Specific Knowledge and Divisional Performance Measurement
Performance measurement is one of the critical factors that determine how individuals in an organization behave. It includes subjective as well as objective assessments of the performance of both individuals and subunits of an organization such as divisions or departments. Besides the choice of the performance measures themselves, performance evaluation involves the process of attaching value weights to the different measures to represent the importance of achievement on each dimension. This paper examines five common divisional performance measurement methods: cost centers, revenue centers, profit centers, investment centers, and expense centers. The authors furnish the outlines of a theory that attempts to explain when each of these five methods is likely to be the most efficient. Key concepts include: Each of these methods can be seen as providing an alternative way of aligning corporate decision-making authority with valuable "specific knowledge" inside the organization. Jensen and Meckling's theory suggests that cost and revenue centers work best in cases where headquarters has (or can readily obtain) good information about cost and demand functions, product quality, and investment opportunities. Decentralized profit and investment centers tend to supplant revenue and cost centers when managers of business units have a significant informational advantage over headquarters. Closed for comment; 0 Comments.
- 05 Oct 2009
- Research & Ideas
The Vanguard Corporation
In the book SuperCorp, Rosabeth Moss Kanter lays out a model for 21st-century companies that care as much about creating value for society as they do value for shareholders and employees. The best part: It pays to be good. Key concepts include: Companies with a very strong sense of purpose use it to guide and speed up innovation. All the vanguard companies studied, save one, outperformed their peers during the recession. Leaders must engage employees in discussions around principles and the applications to the business. Vanguard companies are dynamic places to work, with employees having a say on when and where they work. Closed for comment; 0 Comments.
Cincinnati Children’s Hospital Medical Center
A recent Harvard Business School case by HBS professors Amy C. Edmondson and Anita Tucker explores how one hospital implemented its own version of health-care reform, taking overall performance levels from below average to the top 10 percent in the industry. From the HBS Alumni Bulletin. Key concepts include: The case offers valuable takeaways for future managers of any complex service organization. A key takeaway for students is the power of transparency as a mechanism for change. Benchmarking themselves to an internal standard helped the group get beyond rationalizing poor performance as an unavoidable consequence of the complexity of patient care. Closed for comment; 0 Comments.