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How to Do Away with the Dangers of Outsourcing

Manager interviewing a female applicant in his office

Manager interviewing a female applicant in his office

The recent collapse of the eight-story Rana Plaza garment factory in Bangladesh was a red alert for every company that has embraced the “virtual organization” model and the outsourcing that goes with it.

The lure of the model is obvious. Virtual corporations shrink the core activities they pursue internally, while relying heavily on outsourcing many of those activities to strategic partners. At the same time, they seek to increase the number and nature of product offerings, many of which are also offered by their partners. As a result, traditional corporate boundaries disappear. Staffing, risks, benefits, and regulatory compliance are all increasingly externalized, most often to parts of the world where need routinely trumps prudence.

Rather than manage their own corporate assets, CEOs and other top executives of such corporations are confronted with the seemingly easier challenge of managing relationships with “partners” or “associates.” Yet as the Rana Plaza disaster and too many other examples show, every outsourced stop along the supply and production

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A Roadmap for Afghanistans Economic Future

In this photo released by Associated Press of Pakistan, Afghanistan Deputy Foreign Minister, Hekmat Khalil Karzai, right, shakes hands with  Sartaj Aziz, adviser to the Pakistani prime minister on foreign affairs, prior to meeting of delegates from Pakistan, Afghanistan, China and United States who hope to lay the roadmap for peace talks with the Taliban, in Islamabad, Pakistan, Monday, Jan. 11, 2016. The meeting comes as battlefield losses in Afghanistan are mounting and entire swaths of the country that cost hundreds of U.S.-led coalition and Afghan military lives to secure slip back into Taliban hands. Richard Olson, U.S. Special Representative for Afghanistan and Pakistan is seen at left. (Associated Press of Pakistan via AP)

Discussions about the withdrawal of US troops from Afghanistan are frequent these days, with an emphasis on the importance of post-war security. But what’s usually missing is an even more difficult consideration—that embattled country’s economy. A recent conference at Harvard, organized by the Future of Diplomacy Project and Harvard University’s South Asia Institute, brought together diplomats, security experts, and entrepreneurs in a conversation that ought to occur more often.


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Detroit Files for Bankruptcy HBS Faculty Weigh In


CHARLESTON, SC - JUNE 19: Mourners continue to file past the historic Emanuel African Methodist Episcopal Church, June 19, 2015 in Charleston, South Carolina. Authorities arrested Dylann Storm Roof, 21, of Lexington, South Carolina, after he allegedly attended a prayer meeting at the church for an hour before opening fire and killing three men and six women. Among the dead is the Rev. Clementa Pinckney, a state senator and a pastor at the church, the oldest black congregation in America south of Baltimore, according to the National Park Service. (Photo by Chip Somodevilla/Getty Images)

Once the hub of American manufacturing, Detroit is in a long state of economic decline. The rubber finally hit the road last week, when the city filed for bankruptcy protection. The challenges ahead for those that call the Motor City home are daunting, from a relentlessly declining tax base to a mountain of pension costs. John Macomber, Robert Pozen, and Eric Werker—offer their views on some down-the-road scenarios.

Beyond A Bailout

By: Senior Lecturer John Macomber

Detroit has failed. Why did this happen, might there be more big city failures on

Learning from Double Digit Growth Experiences

Double-digit growth in real GDP is defined as a compound annual growth rate of 10 percent or more over a period of eight years or longer. This paper was written as a policy memorandum for the Government of Liberia, which seeks rapid growth in order to reach middle-income status by 2030. For Liberia, current IMF forecasts predict growth in real GDP on the order of 6 to 7 percent per year. The comparative analysis of this paper asks: In what ways do countries growing real GDP at double-digit rates differ from countries growing real GDP at rates of 6-7 percent? Overall, the findings suggest that Liberia is reasonably well positioned to become another country with double-digit growth. Yet as the analysis shows, countries that have attained double-digit growth are not unequivocally a group that one should strive to join. The ultra-rapid growers whose growth has been driven by resources, aid, or remittances have not generally conducted the sorts of reforms to the legal, regulatory, and governance environment that could have generated high growth without such unearned income. They have also not generally invested their rents well in infrastructure or human capital. Moreover, post-conflict double-digit growers have found it difficult to

Six Lessons from Mobile Money Ventures in Developing Countries

In many emerging economies, the need to give people in poverty better access to financial services seems obvious. The mobile phone is a perfect vehicle, given their widespread adoption, even among the financially less well off.

Designing a profitable solution for an unmet market need should be business strategy 101 for most entrepreneurs, so why have so many mobile money service offerings failed?

It’s a question being studied by Rajiv Lal, the Stanley Roth, Sr. Professor of Retailing at Harvard Business School. “You would think mobile money should be a hands-down success all over the world,” Lal says. “But 80 to 90 percent of mobile money operations are failures.”

“If you don’t identify the right problem, the rest of it will not go anywhere”

His research shows that companies are starting their market analyses in the wrong places.

“Mobile money does not solve the same problem for every country,” says Lal. “If you look at successful implementations, they all started with, ‘What problem can I solve?’ If you don’t identify the right problem, the rest of it will not go anywhere.”

Lal researched successful mobile money programs, and a few that flopped, to compile tips designed to help prospective operators—and perhaps entrepreneurs in other

Political Polarization Why We All Just Can’t Get Along

A recent study suggests that America’s political polarization is driven more by incorrect beliefs and stereotypes about the other side than distaste with those people.

That should be good news for those wondering how to knit polarized sides together, or at least nudge them toward compromise. Incorrect beliefs are easier to overcome than an ingrained lack of trust. However, as the researchers later demonstrate, even that remedy may prove hard to achieve.

Dylan Minor, a visiting assistant professor of business administration in the Harvard Business School Strategy unit, and co-author Pablo Hernandez of New York University, dive into the topic in their working paper Political Identity and Trust.

“Our biggest headline finding is that it seems that it’s beliefs that drive trust, not taste”

If it seems we are a nation of opposites more than ever, we are. According to a Pew Research Center report in 2014, political polarization of the American public has increased, and partisan antagonism is “deeper and more extensive than at any point in the last two decades.”

“When we look at people’s political identities, we know there is huge polarization in America,” Minor says. “But a fundamental question is, are these being driven by what economists would call

The Civic Benefits of Google Street View and Yelp

Even as citizens generate more data than ever before, most cities haven’t taken full advantage of that information flow to improve services and become more efficient. “Historically, cities have been moving in analog, trying to measure things with imperfect data in information-poor environments,” says Harvard Business School Assistant Professor Michael Luca.

That may be about to change. Thanks to the Internet, mobile apps, and a wide range of useful programs online, residents add to the pool of information with every keystroke they make on their computer or smartphone. In addition, cities are expanding their own data-gathering and crunching capabilities through advancements like sensor networks and sophisticated modeling software.

What if cities could make use of all that data to better give residents what they need—for example, using Google Street View to guide economic development, or Yelp restaurant reviews to target hygiene inspections?

“There is so much data now, it’s exhilarating—and frightening”

“There is all sorts of data that is coming in now,” says Luca, “and if you use it carefully you could revamp the way that every policy is evaluated and every operation is done.”

In a new working paper, Big Data and Big Cities: The Promises and Limitations of Improved Measures of

Are You Ready for Personalized Predictive Analytics

Personal Predictive Analytics: Should We Be Careful What We Wish For?

The world of continuous monitoring of numerous sensors for machines and humans, limitless information storage capacity, and big data combined with rapid response logistics to detect and meet personal needs that we don’t know we have can be exciting, efficient, and energizing. Or it can be fearsome, enervating, and subject to mistakes ranging from foolish to fatal. That’s the sense provided by responses to this month’s column.

There was enthusiasm for the potential of these capabilities. As Susan Kalyan put it, “Businesses are becoming so complex that integrating predictive analytics in decision making is not very far away… I think ‘predictive analytics’ is the ‘Moneyball’ for businesses.” Kapil Kumar Sopory said that, “Prevention is better than cure, and this is what predictive analysis in effect helps us to achieve.” Casandra Levine agreed, but introduced a cautionary note. The promise of what can be accomplished by predictive analytics in raising the quality of life and functionality for our society is astonishing, she wrote. “What is not clear yet is how those … qualitative factors will be mitigated (by) leaders who are short on ethics and morality….”

Others, most of whom assumed that

How Crowds and Experts Kickstart the Arts

Philosophers have talked by turns about both the “wisdom” and “madness” of crowds. But when it comes to assessing and funding the arts, just how wise are crowds—and how does their wisdom compare to that of art experts?

HBS Associate Professor Ramana Nanda sought to answer those questions in a recent study, which compared funding decisions of startup theater productions made by art-loving masses on crowdfunding website Kickstarter with evaluations by experts in the field.

“Most of the disagreements were on projects that the crowd liked but that the judges would potentially have given less money to or not have funded at all”

Crowdfunding platforms represent a major shift in the way art projects seek support and find success. Since its founding in 2009, Kickstarter has raised more than $1.5 billion for over 80,000 art projects, opening doors and lifting curtains for many projects that couldn’t or wouldn’t otherwise have gotten off the ground and onto the stage. In fact, Kickstarter now raises more money for artistic projects each year than the National Endowment for the Arts (NEA), an independent federal agency established in 1966, which also funds artistic endeavors, albeit through very different means.

Where the NEA has a nearly 50-year

Kids Benefit From Having a Working Mom

Here’s some heartening news for working mothers worried about the future of their children.

Women whose moms worked outside the home are more likely to have jobs themselves, are more likely to hold supervisory responsibility at those jobs, and earn higher wages than women whose mothers stayed home full time, according to a new study. Men raised by working mothers are more likely to contribute to household chores and spend more time caring for family members.

“There are very few things … that have such a clear effect on gender inequality as being raised by a working mother”

The findings are stark, and they hold true across 24 countries.

“There are very few things, that we know of, that have such a clear effect on gender inequality as being raised by a working mother,” says Kathleen L. McGinn, the Cahners-Rabb Professor of Business Administration at Harvard Business School, who conducted the study with Mayra Ruiz Castro, a researcher at HBS, and Elizabeth Long Lingo, an embedded practitioner at Mt. Holyoke College.

McGinn’s previous research, with Katherine Milkman of Wharton Business School, found that female attorneys are more likely to rise through the ranks of a firm (and less likely to leave) when they

Corporate Field Researchers Share Tricks of the Trade

The term “academic research” can conjure images of scientists conducting experiments in a basement laboratory, or of tweed-clad professors poring through old theories to develop new ones. But let’s not forget about field research, which happens beyond university campuses, out in the so-called real world.

Among economic scholars, field research often takes place within the walls of corporations, non-profits, small businesses, or government entities. Ideally, these organizations eventually can apply the findings of the research to improve operations within their own workforces. But a successful field study requires a lot of ingenuity and trust from both the academics and the field participants.

“Doing Empirical Research in, with, and through Companies” was the topic of a lively session last week at the annual Harvard Business School Faculty Research Symposium. Held each May, the event provides the opportunity for a few faculty members to share recent work with an audience of doctoral students, staff members, and other professors.

In a panel discussion, several professors shared the practical findings of recent field research—along with tricks-of-the-trade for field researchers.

Forming A Research Partnership

Teresa Amabile discussed a comprehensive field study in which her research team collected confidential, personal work diaries from 238 white-collar employees at seven disparate

Men Want Powerful Jobs More Than Women Do

New research from Harvard Business School reveals a stark gap in the professional ambitions of men and women.

Having surveyed a diverse sample of more than 4,000 men and women, a team of social scientists reports a list of potentially controversial findings:

  • Compared to men, women have more life goals, but fewer of them are focused on power.
  • Women perceive professional power as less desirable than men do.
  • Women anticipate more negative outcomes from attaining a high-power position.
  • Women are less likely than men to jump at opportunities for professional advancement.
  • While women and men believe they are equally able to attain high-level leadership positions, men want that power more than women do.

Published this week in the Proceedings of the National Academy of Sciences, their study is entitled Compared to Men, Women View Professional Advancement as Equally Attainable, but Less Desirable.

“Even in the most progressive, gender-balanced households, on average, women seem to think about a greater diversity of pursuits”

While you let that provocative title sink in, it’s worth noting that the research was conducted by three professionally ambitious women: Francesca Gino, a recently tenured professor in the Negotiations, Organizations & Markets (NOM) unit at HBS; Caroline Wilmuth, who is pursuing a doctorate in

Regulators Ease Up on Companies Generating Political Benefits

We all know how political influence works: company X donates money to politician Y, and then that pol leans on regulator Z to go easy on his new best friend. In economic parlance, that circle of back-scratching is known as “regulatory capture.”

Economists have diligently uncovered the levers that politicians pull to spring the trap, including appointment of favored regulators, control of budget appropriations, and direct arm bending of regulators on behalf of companies they favor. In all these models, the cycle of influence always starts with a corporation or other special interest doing something—usually donating money—to set it in motion.

“My results suggest the more you treat the uninsured and the more you provide medical education the less likely you will be subject to these enforcement actions”

But what if companies were given preferential treatment by regulators not because of what they did, but because of what they are? That’s the question that intrigued Jonas Heese, who recently joined Harvard Business School as an assistant professor in the Accounting and Management unit.

While earning his PhD in accounting at Maastricht University in the Netherlands in the wake of the financial scandals that propelled the recent economic collapse, Heese looked at enforcement

National Health Costs Could Decrease if Managers Reduce Work Stress

Our work can literally make us sick. Long hours, impossible demands from bosses, and uncertain job security can take their toll on our mental and physical well-being, leading to stress-induced aches and pains and anxiety. In extreme cases, the consequences can be worse—heart disease, high blood pressure, alcoholism, mental illness.

Even so, the connections between job pressures and health—and what management can do to address the problem—have been little studied.

“We have not placed a lot of emphasis on the role of workplace stress in the high cost of health care”

“We have this body of research that shows workplace stress is very bad for health, and we have this other information that says our health costs are way above that of other countries,” says Joel Goh, Harvard Business School assistant professor of business administration in the Technology and Operations Management unit. “But traditionally in the US we have not placed a lot of emphasis on the role of workplace stress in the high cost of health care.”

In recent years, General Motors spent more on health care than it did on steel, and across the country, companies are struggling to find affordable plans for their workers, in some cases dropping health

HBS Cases The Battle for San Francisco

San Francisco has always been a beacon for people who want to change the world. From beat poets to hippies to gay activists, each wave of counterculture immigration has put its stamp on the city, creating a unique blend that has set it apart from any other in America.

That culture, in turn, has been a draw for innovators of a different sort—technology workers who began populating the suburbs of the South Bay, which came to be known as Silicon Valley, in the 1970s and ’80s. In recent years, they have increasingly put down roots in San Francisco itself, commuting south to work by day and coming home for restaurants, art, and culture at night. And more and more, tech businesses are locating here.

“This is a place where the effects of inequality appear to be heightened and most palpable”

In doing so, however, technology workers may be threatening the very culture that they came to celebrate. The influx of wealthier professionals has driven up housing costs, increased the pace of gentrification, and threatened the city’s rich racial and socioeconomic diversity. Tensions came to a head in December 2013, when a group of angry protesters stopped a Google commuter bus leaving San Francisco

After Germanwings More Attention Needed on Employee Mental Health

When news broke March 24 that a young co-pilot for Lufthansa’s low cost-airline Germanwings had intentionally crashed a passenger jet into the French Alps, killing himself and 149 others, people struggled for answers. What would make someone take his own life along with those of so many innocent people?

One possible answer came this past week when the airline revealed that the pilot, Andreas Lubitz, had previously suffered from deep depression. Debates began about how Lubitz’s mental health played into the tragedy, what treatment he might have received, and whether Lufthansa should have let him fly at all.

That discussion is a rare surfacing of an issue too often ignored—the problem of mental health in the workplace.

“A very interesting question to ask is whether the tragedy will be good or bad for treatment and management of mental health in the workplace”

“To date, companies have focused on physical health much more than they have on mental health,” says Professor John A. Quelch, Charles Wilson Professor of Business Administration at Harvard Business School. In collaboration with Carin-Isabel Knoop, executive director of the HBS Case Research & Writing Group, he recently wrote the note, Mental Health and the American

Firm Competitiveness and Detection of Bribery

Bribery is widespread around the world, illegal, detrimental to economic progress and social stability, and at the same time it can have clear economic benefits for a firm. While the benefits of bribery for a firm, through acquisition of contracts or avoidance of government bureaucracy, are intuitive and well documented, the costs after detection are less well understood. In this paper the author examines how the impact on firm competitiveness from the detection of bribery varies with the identity of the initiator, the method bribery was detected, and the firm’s response after detection. All three dimensions are significantly associated with the impact on firm competitiveness. In addition, the data suggest that the most significant impact is on employee morale, followed by business relations and reputation, and then regulatory relations. Key concepts include:

  • Internally initiated bribery from senior executives is correlated with higher likelihood of significant impact.
  • Bribery cases detected by the internal control systems of the firm are associated with a lower likelihood of significant impact on the business and regulatory relations of a firm.
  • Firms that responded by firing an employee or ceasing business relations with outside parties that initiated the bribery have lower likelihood of significant impact.
  • Understanding how managers’ perceptions

To Buy Happiness Purchase an Experience

Conventional wisdom says that money can’t buy happiness. Behavioral science begs to differ. In fact, research shows that money can make us happier—but only if we spend it in particular ways.

In their book Happy Money: The Science of Smarter Spending, authors Elizabeth Dunn and Michael Norton draw on years of quantitative and qualitative research to explain how we can turn cash into contentment.

The key lies in adhering to five key principles: Buy Experiences (research shows that material purchases are less satisfying than vacations or concerts); Make it a Treat (limiting access to our favorite things will make us keep appreciating them); Buy Time (focusing on time over money yields wiser purchases); Pay Now, Consume Later (delayed consumption leads to increased enjoyment); and Invest in Others (spending money on other people makes us happier than spending it on ourselves).

In the following video, the first in a series, Norton doles out some cash to two women in Harvard Square on a sunny summer day. The catch: Each of them must take the money and spend it on an experience.

“One of the most common things people do with their money is get stuff,” explains Norton, an associate professor of marketing at Harvard Business

Why Americans Voted for an Income Tax

We can be forgiven, especially this time of year, for questioning a decision our predecessors made just over a century ago. In the 1910s, Americans decided to make personal and corporate income taxes a permanent feature of the United States economy.

Why did they start us down this road? And given that the taxes they endorsed started out small in scope and size but have multiplied by a factor of eight as a share of our economy, have we gone off course?

After all, when an income tax was introduced in 1862 to fund the Civil War, it lasted just six years before being replaced by other taxes. It took another 50 years before the 16th Amendment, which allows Congress to levy a national income tax, was adopted in 1913.

Why We Tax Ourselves

One of the clearest statements of why Americans in the early twentieth century were willing to tax their incomes came from President Franklin Delano Roosevelt in the 1930s:

“With the enactment of the Income Tax Law of 1913, the Federal Government began to apply effectively the widely accepted principle that taxes should be levied in proportion to ability to pay and in proportion to the benefits received. Income was

Studying How Income Inequality Shapes Behavior

It’s clear that inequality in America has grown at a fast clip in recent years. From 1980 to 2010, the top 1 percent’s share of income has doubled from 10 percent to 20 percent, while the income share of the bottom 90 percent fell from 65 percent to 52 percent. Those kinds of swings have spurred public outrage and protests, as well as a fair amount of handwringing on the part of politicians.

What’s less clear is how this rising level of inequality has affected the nation. Researchers have tried to determine its impact on a wide array of indicators—among them economic growth, public spending, financial stability, political representation, and average health and educational outcomes. But this research has done little to demonstrate the effects of inequality. Some researchers have found no effects at all, while others have identified opposite effects in different situations.

“The beauty of running lab experiments is that we can simulate many different types of inequality and look at many different types of decisions.”

“You’d think that with such a large change in our society, you’d see a definitive impact somewhere,” says David A. Moss, the John G. McLean Professor of Business Administration at Harvard Business School,