R & D
From Control to the Uncontrollable: Faculty Research Symposium Offers Range of Ideas
Members of the HBS faculty published 23 books and 157 papers and book chapters last year. In late May, the School recognized faculty achievement at the second annual Faculty Research Symposium. Sponsored by the Division of Research and Faculty Development, the event aims to share intellectual capital within the School, strengthen the intellectual community, and celebrate the faculty’s research accomplishments.
This year’s symposium featured thirteen faculty members presenting research on topics ranging from managing multisite nonprofits to behavioral corporate finance. Synopses of three presentations follow.
Incentives and Operational Excellence: HBS associate professor V.G. Narayanan
The Power of National Identity: Assistant Professor Rawi E. Abdelal
Lessons from Everest: Assistant Professor Michael Roberto
Incentives and Operational Excellence
Operational problems can be the cause of an organization’s demise. Often they can be traced to poor controls in interorganizational settings, according to HBS associate professor V.G. Narayanan, a specialist in measurement systems and incentives. Narayanan’s presentation focused on some problems common to both major corporations and mom-and-pop shops, and offered practical solutions based on his research.
One case Narayanan used to illustrate his point involved a family-owned video store. Generally in the past, he said, as many as 25 percent of rental customers would be disappointed when the video they wanted was out of stock. Retailers typically buy videocassettes from studios for $45 each and rent them for $4. Tapes are disposed of for $5 after three months, so the retailer must rent the tape at least ten times to break even.
The incremental cost for studios to put an additional tape on the retailer’s shelf, however, is less than $3. Demand for an individual movie is highly uncertain and usually declines rapidly after the first few weeks, Narayanan said. One contracting solution to bridge the divide between studios and stores was for the studios to sell tapes at a lower price — say $3 — in return for a share of the revenues, typically 50 percent. This allowed the retailers to break even with just one or two rentals. Monitoring and technology, however, are key to implementation of the plan, and the new system couldn’t work without the help of a third company, Rentrak. Rentrak kept track of the scanner data and performed audits and spot-checks to ensure compliance with the revenue-sharing contracts, thus enabling the new system to thrive.
“In this case,” said Narayanan, “the solution was win-win-win. The customers, the retailers, and the studios all benefited.”
Excerpted from HBS Working Knowledge: www.workingknowledge.hbs.edu.
The Power of National Identity
Assistant Professor Rawi E. Abdelal began his talk on “Politics of Identity in the Post-Soviet World” by showing a photograph of a monument located near Vilnius in Lithuania. The pyramidal object marks the point that Lithuanians say puts them in the exact center of Europe.
“The Lithuanians are proud of this distinction,” noted Abdelal, a scholar of international political economy and author of National Purpose in the World Economy: Post-Soviet States in Comparative Perspective, which won the 2002 Marshall Shulman Book Prize from the American Association for the Advancement of Slavic Studies. He quoted from an interview with a member of the Lithuanian parliament who, eager to distance his country from its former association with Russia, steadfastly defined Europe as “not Russia.” “Of course,” reasoned Abdelal, “if Europe does not extend all the way to the Ural Mountains, some eight hundred miles east of Moscow, then Lithuania cannot be the geographical center of Europe. But in the post-Soviet era, beliefs about national identity don’t necessarily have to be true to be powerful.”
Abdelal asserts that the remarkable variety of foreign economic policies among the fourteen former Soviet states and Russia is the result of each state’s unique sense of national identity and historical relationship with Russia. The countries’ distinctive approaches to monetary policy and trade relations have placed them roughly in three categories: countries that favor economic reintegration with Russia; countries seeking reorientation and closer integration with Europe; and “ambivalent” countries torn between Russia and the West.
At the time of the Soviet breakup, few in the international community would have predicted this outcome. Policymakers at institutions such as the World Bank and the International Monetary Fund looked at “the deeply institutionalized economic interdependence” that existed among these states and assumed that continued close economic cooperation would be “an obvious necessity.” Similarly, many world leaders — including President George H.W. Bush — feared the nationalist tendencies that would emerge after the breakup would be uniformly detrimental to Western interests. Abdelal’s research draws instructive lessons from the fact that neither of these scenarios materialized and suggests that policymakers need to take a closer look at the role of national identity as a determining factor in economic behavior.
— Deborah E. Blagg
Fifty years ago, Edmund Hillary and Tenzing Norgay became the first men to stand atop Mount Everest, a symbol of challenge and achievement whose allure — some would call it a fatal attraction — has only increased since then. A week before the anniversary of Hillary and Norgay’s milestone, even as scores of hopeful climbers were trying to duplicate their feat, Assistant Professor Michael Roberto discussed his research into the tragic Everest events of 1996. In May of that year, eight individuals perished in a single day while attempting to conquer the world’s highest peak. The victims were part of a relatively recent phenomenon — organized adventures in which companies escort small groups of clients, willing to pay some $60,000 each, to try to summit the mountain.
From his intellectual base camp in Hawes Hall, Roberto examined the Everest disaster through three theoretical lenses: behavioral-decision theory, group dynamics, and complex systems. “The problems that occurred at each of these levels were mutually reinforcing,” Roberto said. Key contributors to the disaster may have been overconfidence based on recent successful ascents; an inability to ignore sunk costs; the group’s failure to act as a true team; and a lack of “psychological safety,” a group dynamic that emboldens individual members to ask questions, admit mistakes, and express dissent. Ultimately, a failure to question leadership — coupled with the overwhelming desire of nearly all group members, for various reasons, to reach the summit — undermined the better judgment of professionals and amateurs alike. A lesson for leaders, Roberto noted, is that even the most qualified and experienced people can make mistakes. Yet experts are often deferred to when critical decisions must be made. “One danger with groups,” he said, “is that experts are often wrong.”
