http://www.tuck.dartmouth.edu/news/articles/ en Sarah.A.Jeror@tuck.dartmouth.edu Copyright 2012 2012-01-05T19:15:05+00:00 http://www.tuck.dartmouth.edu/news/articles/what-to-expect-from-technology-in-2012/ http://www.tuck.dartmouth.edu/news/articles/what-to-expect-from-technology-in-2012/ The Consumerization of Information Technology Information workers: Say goodbye to having two sets of computers and phones—one for your personal use and another for the office. They are being melded together by a phenomenon known as the consumerization of IT. Increasingly, people are ditching their corporate-issued BlackBerrys for their personal Android phone, or are shunning their ThinkPads for their iPads. And, in many instances, corporations’ IT departments are going along with it. Historically, consumer technology wasn’t as good as what you could get at work. “That’s changing very quickly,” Johnson says. “Very inexpensive devices brought to market for the consumer, with better usability functions and social media, are more powerful than what you have at the office.” Some companies still limit consumer devices, citing security concerns, but others have given their employees a budget and told them to buy whatever computer they want. Look for more of the latter in the coming year. Mobility In general, mobile technology is an old story—who doesn’t have a smartphone or a tablet these days? What’s new is their capabilities. Now, mobile devices have as much computing power as the laptops of 2009. Plus, the cloud has enabled these devices to do more with less space than ever before. For corporations, the power of mobile computing has opened up new forms of interaction with their customers and employees. More and more companies, for example, are developing their own apps for different constituencies. Instead of a catalog, customers can browse a firm’s products through an app; instead of emailing technical bulletins to engineers, a construction company can put all the information on its internal app store. As it stands today, most apps flow to users through the iTunes App Store or the Android Market. That will change with the more widespread adoption of HTML5, a computing language for the Internet that enables an app-like experience through web browsers. The advantages of this app-in-a-browser are at least two-fold: app developers won’t have to create multiple versions for the Apple and Android operating systems; and it will allow a more seamless experience for business transactions within a web page.  “There’s a lot of reason to believe that apps as we know them could be overtaken by HTML5,” Johnson predicts. “I think it’s going to be huge this year.” Social Media More nuance here. Johnson doesn’t expect any new social media platforms emerging in the near future. Instead, we’ll see social media popping up in more places. “Social will become a feature of almost everything,” Johnson says. One example: The divide between personal and corporate social media is being bridged by sites like Chatter, which incorporates a Facebook-like feel into the daily workflow. Perhaps the bigger story in social media is the process by which the world explores its possibilities. For instance, transacting through Facebook is not an elegant experience today, but that may change. “For a branded company like Nike, that’s a big deal,” says Johnson. “They’re trying to decide where to be so that it’s easiest for customers to get their products.” They’d like to see a Facebook where a picture of Jay-Z in Nike gear is a seamless gateway to buying those products on Nike’s e-commerce site. Cloud Cloud computing “went through a giant hype cycle last year, and now it’s becoming real, very fast,” Johnson says. What that means is that more and more consumers will be storing music, photos, and documents in cloud-based services such as Dropbox, iCloud, and the Amazon Cloud Drive. For the business world, the cloud has first meant “virtualization,” or the creation of proprietary clouds of servers and computers that can be shared within an organization. What’s next is the public cloud, and Johnson says companies will move aggressively into that space this year. The cloud has also changed the face of entrepreneurship. “No one is doing a startup that’s not in the cloud,” Johnson says. “The days of buying a server and configuring it—that’s over.” Big Data As the name implies, the Big Data phenomenon is all about the unfathomable amount of information being generated and stored on the Internet. Sometimes this data is just out there, waiting to be collected. Other times, it’s owned and stored privately. In either case, its value for analysis, trend-spotting, communication, marketing, and more is just now being realized. Why now? For one thing, the “Internet of things”—devices linked to web and collecting data—is growing bigger everyday. Second, the supercomputing it takes to sift through these rivers of bits is cheaper and more readily available. The bottom line: Brace yourself for a world where computers tell you what you like and what to do—accurately. “Predictive analytics are often more reliable than our own judgment,” Johnson says. “When you’ve got the data and can grind away at it, machines can do much better than humans.” Faculty, News, Tuck Today iPad app, 2012-02-01T13:13:04+00:00 http://www.tuck.dartmouth.edu/news/articles/300-house-design-workshop/ http://www.tuck.dartmouth.edu/news/articles/300-house-design-workshop/ That was the warning from Dartmouth President Jim Yong Kim to a group of Tuck School of Business students, engineers, and designers who gathered at the Georgipoulos Classroom in Tuck’s Raether Hall January 25 for the start of a four-day workshop to implement Tuck professor Vijay Govindarajan’s challenge to design a $300 house for the world’s poor. “The narrative goes something like this: These people are poor because they deserve to be poor, every effort I’ve made to lift them out of poverty has failed,” said Kim, in his keynote address launching the $300 house design workshop. “Who the hell are you to come and tell us that something we know to be is impossible is possible.” The stew of charities, for-profit contractors, and donors that comprise the modern foreign aid industry can be no less bureaucratic, territorial, and inflexible than the largest corporations. Innovation requires the determination to go against the crowd. Govindarajan, the Earl C. Daum 1924 Professor of International Business, and co-author Christian Sarkar’s 2010 Harvard Business Review blog post challenging the corporate world to design a $300 house that could provide clean water, shelter, and solar electricity to the world’s poorest has generated a spectacular response. The Economist, CNN, and The Guardian all published laudatory stories of the project while two critics of the contest were featured on The New York Times editorial page. A social networking site for the project now has 2,500 members. The workshop brings together students, designers, planners, engineers, health care providers, business thinkers, and members of two communities in Haiti to develop design prototypes that will provide low-cost housing for those currently served by conventional housing programs. The plan is for work on the prototypes to continue beyond the workshop and eventually develop into pilot projects in Haiti. Kim is well positioned to speak on the challenges of aiding the poor. As a Harvard medical student in the 1980s, he co-founded Partners in Health, an aid agency that now has more than 11,000 staff across the globe from Siberia to Lesotho.  The application of management practices to aid work is badly needed, said Kim. When businesses execute poorly, they’re eventually driven out of the market. Not so in the social sector. So long as non-governmental agencies can continue raising money they can continue operating. For decades aid work was judged in moral terms, whereby agencies could declare success simply in demonstrating that they cared about the poor and were making an effort to help them. “When it comes to our most cherished social goals, we cherish executing poorly, we celebrate not knowing what our budget is or what our outcomes are,” said Kim. “I would argue that if you’re really, really committed you hold yourself to a very high standard of execution and outcome.” In comparison to the private sector, aid groups also do a poor job of exchanging information about how to work more effectively. “The little tricks that airline companies know to be more effective are published everywhere,” said Kim. “The little tricks to deliver medicine to poor people more effectively aren’t shared anywhere.” The design of the $300 house won’t prove a magic bullet in and of itself, Kim said. The key is in how the innovation can be delivered to ensure the best outcomes for the poor. Eradication of a disease that affected 50 million people each year in the 1950s came about not only because of the development of the smallpox vaccine, but because of enormously successful management of an eradication program that focused on targeted vaccinations of those most likely to have come in contact with the disease, he added. As in business, listening to your consumers—in this case the world’s poorest—is key to a winning strategy. Years ago aid agencies attempted to introduce solar bread ovens. The only problem: many of the people it was designed for didn’t like bread. “People who were starving would come to us and say we can’t eat this,” said Kim. “A preferential option for the poor is very different from a preferential option for your idea.” The housing project can succeed if those working on it can adopt ideas from their consumers while ignoring doubts from the aid establishment vested in the status quo. “You’ve got to believe not only that it’s doable,” said Kim, “but you have to do it in the face all of all those people sitting in hotel bars in poor countries telling you its impossible because if it was possible they’d have already done it.” Curriculum, Faculty, Health Care, International Business, MBA, News, Students, Tuck Today iPad app, 2012-01-26T19:27:01+00:00 http://www.tuck.dartmouth.edu/news/articles/from-the-ground-up-1/ http://www.tuck.dartmouth.edu/news/articles/from-the-ground-up-1/ Now comes the messy process of turning the country into a place with human rights, transparent government, and open commerce. Few people know more about what that transformation will take than Diederik Vandewalle, an adjunct associate professor of business administration at Tuck who teaches a mini-course on doing business in the Arab Gulf states. One thing’s for sure: Unlike other developing economies, money won’t be a problem. In addition to the constant income from oil, it’s estimated that $180 billion in assets frozen during the revolt will soon be flowing back into Libya. “The challenge will be the efficient use of money in a system where corruption and lack of regulation was rife,” Vandewalle says. Vandewalle, who is also an associate professor of government at Dartmouth College, has studied Libya closely for the past 25 years, and 2011 was an especially busy time. Since the country was freed from Gadhafi’s grip, Vandewalle has been consulting almost non-stop with a wide variety of companies and international organizations. As a new Libyan government fills the vacuum of power, he has been asked the same basic question again and again by business leaders: If we make an investment today, how much certainty do we have that we’ll still be able to operate two years from now? “It’s a very interesting question,” Vandewalle says. “On the one hand, I’ve worked for a while on Libya and I’m very hopeful that the country will do well. But on the other hand, I’m also very aware of the pitfalls, and I’m a little worried about what’s coming down the pike, mostly about the enormous inflows of capital that make economic management more difficult.” How would you characterize the business environment in Libya when Gadhafi was in power? One of the major problems was that in principle there were some legal stipulations about how to do business, how the oil companies had to invest, and so on, but in reality, of course, all of that was circumvented by the fact that Gadhafi and his family and a very close circle of friends were really dominating and controlling just about any contract that was signed.  There was no accountability and virtually no transparency or rule of law. What kind of government has been put in place in Gadhafi’s absence? When the rebellion was still taking place, there was a transitional national council (TNC). It has now appointed a cabinet. So, in principle, they do have a government in place, but that is still not an elected government, it’s appointed. It is not seen as truly legitimate by some actors. But the really big problem for Libya is that the central government still doesn’t have the power to impose its will. There are literally hundreds of militias with their own arms and leaders that just kind of run amok in many ways. What has to happen in order for a vibrant and diversified economy to emerge? First, you need the rule of law. Second, you really need a neutral and professional bureaucracy that can guide investments and provide information. Linked to that, you need an educated workforce that can deal with these issues. The teaching of English was forbidden for long periods of time, and so you get to talk to these people who are supposedly in charge of major companies, who barely speak English. Finally, the banking sector will need to be built up. The country will want to build an Islamic banking system, and it will be very interesting to see how much money flows into that system and how they will deal will the pre-existing contracts that contradict Islamic banking principles. What are the business opportunities in a new Libya? There is a whole range. Beside the oil sector, there are companies lining up that want to go into educational ventures, manufacturing and tourism—Libya has some of the most beautiful Roman and Greek ruins in the entire world that have never really been exploited for commercial purposes. Literally, there is investment and expertise needed across the entire economy. You’re teaching a mini-course soon on doing business in the Arab Gulf states. How does that region differ from North Africa? In a sense, they’ve been outside the Arab Spring. They’ve used an enormous amount of money to simply keep people politically quiescent. The Arab Gulf states have spent up to $150 billion since last year, when the troubles started, to assure their population that the government is still here to provide for them, which keeps them quiet. Do you see a form of democracy taking shape in Libya? There are a lot of people, including myself, who say we need to be careful of simply having a veneer of democracy without having the necessary consensus and institutions. Otherwise what you end up with is hollow electoralism—yes, you have elections, but they don’t really mean anything. The Libyans have thought about that very carefully and are considering the best democratic system within the kind of political culture they live in. No matter how you provide transparency and accountability, that is major progress for a country like Libya. How long do you think it will take for the legal and economic systems to mature? That’s what a lot of companies want to know. My hunch is that it really depends on one major factor: to what extent the government can really get power centralized and do away with these militias. If they can get the order issue sorted out, I think they can move forward within a year. Economics, Faculty, International Business, News, Tuck Today iPad app, 2012-01-25T14:23:49+00:00 http://www.tuck.dartmouth.edu/news/press-releases/dartmouth-president-jim-yong-kim-to-give-keynote-address-to-open-300-house/ http://www.tuck.dartmouth.edu/news/press-releases/dartmouth-president-jim-yong-kim-to-give-keynote-address-to-open-300-house/ On Wednesday, January 25, Dartmouth College President Jim Yong Kim will deliver the keynote address at the Tuck School of Business to launch a four-day design workshop for the $300 House Project, a concept developed by Tuck Professor Vijay Govindarajan. In the fall of 2010, Govindarajan developed the $300 House concept and began a blog  to initiate a dialogue on proposed solutions to develop low-cost housing for the poorest populations in the world, those who are not currently served by any conventional housing programs. Since the initial concept discussion, students, faculty and staff from Tuck, the Thayer School of Engineering, Dartmouth’s Studio Art Department and the Center for Health Care Delivery Science have collaborated on the $300 House project.  “Over 70 million people – the size of the United Kingdom – live in pavements with only sky as their roof,” Govindarajan said. “Is this right? Even insects and spiders have houses. Housing is a human right. Any nation which cannot house and look after its own people is a failed nation. It doesn't have to be that way. Businesses, governments, and NGOs must work together to solve this wicked problem.” The four-day workshop will bring together students, designers, planners, engineers, healthcare providers, business thinkers and members of two communities in Haiti with the goal of integrating the best aspects of their ideas into a single prototype house for rural areas or densely populated urban slums. The project aims to expand into pilot projects in Haiti. The address on the $300 House Project is open to the public and will take place at 4:30 p.m. on Wednesday, January 25, in the Georgiopoulos Classroom in Raether Hall at the Tuck School of Business. It will focus on connections between innovative thinking, the provision of decent, affordable housing for the poorest populations of the world and the role such development plays in the improvement of health, economic stabilization and development. Kim took office as the 17th president of Dartmouth College on July 1, 2009. He is the first physician to serve as Dartmouth’s president; a co-founder of Partners in Health (PIH) and a former director of the Department of HIV/AIDS at the World Health Organization (WHO). He has dedicated himself to health and social justice work for more than two decades, helping to provide medical treatment to underserved populations worldwide. 2012-01-23T14:32:52+00:00 http://www.tuck.dartmouth.edu/news/articles/a-grueling-journey-complete/ http://www.tuck.dartmouth.edu/news/articles/a-grueling-journey-complete/ For the trio of men, who make up the Polar Vision team that’s raising money and awareness for the visually impaired, it was the culmination of two years of training, planning, and fundraising, and the final execution of the trip couldn’t have gone much better. They arrived at their destination on time and without injuries, and thus far have raised more than $25,000 for the charities Sightsavers and Guide Dogs for the Blind. Back home in England and catching up on loads of laundry, Smith reflected on his accomplishment. “It’s a weird roller coaster of emotions,” he said. “I was elated to be out there, but at times I wished I were somewhere warm. Now I’m done and I’m thinking, What’s next?” For the time being, Smith is looking forward to returning to Boston and to his job in the private equity group at Bain Consulting. He started there in September and took a leave of absence at the end of November to make the journey to the southernmost point on earth. “I’m excited to get back to work,” he said. The desk job will likely seem easy compared to their expedition across the ice. To start the adventure, the team boarded a midnight flight to the Antarctic coast from Punta Arenas, Chile, on November 26, and set off on skis the following day. They were challenged at first by the monotony of the barren landscape, but soon overcame that with a bit of symmetry: a daily routine. They broke the days up into six “marches” lasting an hour and 15 minutes each, with a 10- to 15-minute break in between. With the exception of Lock, who is legally blind from macular degeneration, they took turns navigating: McKeand did the first and fourth shifts; Smith took the second and fifth; and Jensen the third and sixth. The routine continued when they set up and broke down camp, with each person doing specific jobs every day. For the first 10 days, the weather was on their side. The temperature hovered between 20 and 30 degrees Fahrenheit—balmy, by Antarctic standards—with blue skies and not a lick of wind. But it couldn’t last. Soon, storms blew in, bringing days of complete whiteouts and a stiff wind that was never at their backs. On these days, they couldn’t use the standard strategy of finding a snow feature and skiing toward it for five minutes. Instead, they had to shuffle, feet unseen in the white fog, according to the bearing on their compasses. This was complicated by the presence of sastrugi—jagged, three-to-five foot snow mounds formed by the wind. With Lock in tow, they had to navigate around these obstacles carefully. “We’d create a V-formation around him,” Smith explained, “with one person in the lead with the compass and two people flanking Alan on either side.” When they reached the South Pole on January 3, they were happy to find the structures erected for the celebration of the 100th anniversary of the Amundsen and Scott expeditions, which made it to the pole on December 14 and January 17, respectively. Being right in the middle of those two dates, “we had the pole all to ourselves,” Smith recalled. They took plenty of photos at the Ceremonial South Pole, ringed with the flags of nations, and were invited inside the Amundsen-Scott South Pole Station, a research facility built by the United States. {media1}“Tuck was a huge part of our success,” Smith said. “There is no way on earth I could have done this had it not been for my MBA experience.” Help came in the form of major financial backing for the operational expenses by Daniel Revers T’89 and another anonymous alumnus. One of the team’s biggest equipment sponsorships came from Iridium, the maker of satellite phones and equipment. That sponsorship, which included two phones, Wi-Fi access points, and unlimited minutes, came through the Tuck network. In addition to that practical assistance, Smith said being at Tuck gave him the leadership skills and confidence to achieve a goal of this scale. “You’re driven to succeed because of the other people doing the same thing,” he said. “When you’re in this high-performing environment, it rubs off.” Their mission accomplished, the Polar Vision team is now focusing on sharing its experiences with the world, through speaking at conferences in Norway and the U.S., and by creating a documentary film about their trip. They’re looking at their expedition as an asset that can keep paying dividends. “We have to think about how best we can use this for our sponsors, the stakeholders in Polar Vision, and the charities,” Smith said.   Alumni, Leadership, MBA, News, Students, Tuck Today iPad app, 2012-01-13T19:28:17+00:00 http://www.tuck.dartmouth.edu/news/articles/to-get-a-job-tell-a-story/ http://www.tuck.dartmouth.edu/news/articles/to-get-a-job-tell-a-story/ The most recent example of this was the Recruiting Kickoff event organized by the Career Development Office. In the first segment of the day, Paul Argenti, a professor of corporate communication at Tuck, presented a talk entitled, “The Art of the Narrative.” During the 90-minute session, Argenti showed students how to strategically tell the story of their life and career search during a 20- to 40-minute job interview. After that, students met up with their new study groups for peer mock interviews facilitated by alumni and staff, a time when they could practice Argenti’s interview tips and demystify the whole interview process. The Recruiting Kickoff took place about halfway through the school year, but well after first-years have begun preparing for the summer job search. That process actually starts during the summer before they first arrive at Tuck, when they are encouraged to start writing their resumes and contemplate career options. During first-year orientation, students are briefed on the road map and rudiments of a job search. Fall term is full of company briefings, career treks, networking, and events like Sector Smarts, where alumni speak to students about what it’s like to work in different industries. During the second half of the fall term, students get advice about drafting their cover letters and resumes, and begin applying for summer jobs in earnest. The actual interviews happen on campus in late January and early February, while off-campus interviews can run through the end of the school year. In any event, 100 percent of first-year students get summer internships. All of which means the Art of the Narrative came just in time to get first-years primed for their upcoming interviews. Argenti frequently consults with major companies on how to tell their stories in good times and bad, and he said many of the rules he uses in that forum also apply to the job interview. Rule No. 1: think strategically. “You need to remember what your role is as a communicator,” he told the students. “Ultimately, it’s to convince them to hire you.” From the recruiter’s perspective, a flurry of interviews is an elimination process, a whittling down of the pile to a few core candidates. To stay in that pile, said Argenti, you need to organize your life into a coherent narrative with emotional and intellectual resonance. Fair or not, the interviewee’s chance to tell this story usually comes right at the beginning of the interview, during what Argenti calls the “getting to know you” period. “This might seem like throwaway time,” Argenti said, “but we know from talking to executive recruiters that their decision is made within the first one or two minutes. They make up their mind immediately.” The best way to take advantage of these crucial first minutes is to have a succinct but well thought out summary of your life before, during and after college, and how those experiences and decisions led you to the interview. “Everything you talk about should be related to one goal: convincing them you’re the right person to do the job,” Argenti said. If you’re successful, not only will the story be authentic and logical, it will fix your interview in the mind of the recruiter so he or she won’t forget you. Beyond the edict of selling yourself through a compelling narrative, acing an interview also comes down to a few simple guidelines, Argenti said: be positive, be direct, listen carefully, have a few questions to ask, be careful about your non-verbal behavior, and dress appropriately. “This is kind of like a blind date,” he said. “You really want to impress this person and be called back.”   Alumni, Careers, Faculty, News, Students, Tuck Today iPad app, 2012-01-13T19:26:44+00:00 http://www.tuck.dartmouth.edu/news/articles/research-highlights/ http://www.tuck.dartmouth.edu/news/articles/research-highlights/ {media1} More is Less One problem for firms like General Electric or IBM that focus on sales to businesses is that many of their divisions have independent marketing and sales teams who often target the same customers. So even as a salesperson in one division is paying a call on a business client, that same customer may have a pitch from a different division of the company in his inbox and a voicemail from a sales team member in a third division. Tuck assistant professor Y. Jackie Luan examines the wisdom of this approach in new research that mines 16 months of data from a high-tech company. It is often taken for granted that additional contacts from different specialized sales teams should increase sales because it increases the chances of identifying a customer’s needs. Instead Luan finds that greater “breadth” of marketing contacts, as measured by the number of different internal marketing teams in contact with the same customer, actually harms lead generation and final sales performance. That may be because the varying marketing messages harm the firm’s brand, confuse the customer, or are in conflict with each other. Luan’s research shows that companies should focus on improving marketing depth—the level of customer interactions with a particular marketing theme or benefit positioning. When it comes to selling multiple products to businesses, a few well-targeted, well-coordinated marketing programs may be better than a greater number of less effective ones. Can Decentralized Marketing Communication Hurt B2B Sales? Evidence from a Field Experiment {media2} Quality’s Components Defining quality can be as subjective as coming up with a definition for obscenity. “I know it when I see it,” former Supreme Court Justice Potter Stewart once wrote of the latter. The same could be said of how firms and people perceive quality: engineers tend to view it by defining how well a product conforms to design specifications. Customers, however, judge a product by how it compares with their individual expectations, a much fuzzier standard that is shaped by factors like other customers’ perceptions, advertising, and emotions. To sharpen the focus, Tuck professor of marketing Peter Golder and his co-authors have come up with a three-pronged definition of quality drawing from divergent areas of business research that he hopes will help firms better manage customer satisfaction. The first part of the definition relates to a product’s “produced-attribute quality,” or conformity to design specifications. A second component is its “evaluated-aggregate quality,” which measures how the product’s perceived performance aligns with the customer’s ideal expectation. The final is its “experienced-attribute quality,” a little-researched concept that measures how much delivered quality is actually perceived by the customer and how that conforms to a customer’s expectations. Golder’s integrated definition may help researchers understand why improving product attributes often has little or no effect on customer satisfaction. In some cases, companies are better off investing in managing their customers’ expectations or influencing customer’s emotions. Customers may not actually know quality when they see it, but they can be prompted to believe it exists. What is Quality? An Integrative Framework of Processes and States {media3} Valuing Innovation Stock markets do an uneven job at valuing research and development. How else can companies with poor records of converting research spending into saleable products be priced similarly to star innovators? New research by Tuck associate professor Karl Diether shows that by tracking past performance and research and development spending, future sales and patents can be accurately predicted and are relatively simple to compute. Take Texas Instruments, a company that invented the handheld calculator in 1967, developed the first single-chip speech synthesizer in the 1970s (used in its popular Speak & Spell toys), and defined the market for graphing calculators in the 1990s. Its record should have allowed Wall Street to forecast the company’s success in developing new chips for wireless videoconferencing and the mobile Internet in the late 1990s after years of heavy investment. Indeed, Texas Instruments’ stock price more than doubled between July 1998 and July 1999. But firms like Merrill Lynch and Prudential were late in upgrading the stock, doing so only after the company announced major deals with equipment-makers like Ericsson and Compaq. Diether found that a strategy based on buying companies with good R&D track records while short-selling companies with inefficient returns yields about 11 percent annually. Misvaluing Innovation Faculty, News, 2012-01-06T19:24:42+00:00 http://www.tuck.dartmouth.edu/news/articles/enduring-innovation-in-an-ever-changing-world/ http://www.tuck.dartmouth.edu/news/articles/enduring-innovation-in-an-ever-changing-world/ A wave of technology washes over the world and suddenly your film camera is obsolete. Then another one comes along and your Walkman is a quaint artifact. It’s an oft-told tale, one in which existing firms are hampered by their old knowledge. But “what’s missing in the story,” says Tuck associate professor Alva H. Taylor, “is that those disruptions are pretty rare.” More frequently, technological innovations are gen­erational in nature—tweaks that don’t herald revolu­tions so much as, say, faster processing speeds or more memory. Generational changes are underappreciated because they’re often an indicator of long-term suc­cess, not short-term survival. “If you miss a disruptive change, you go out of business,” says Taylor. “Miss a generational change and you go from being number one in your market to number six or seven.” That is still a significant change and one that repre­sents a challenge to businesses that Taylor explores in new research on the video-game industry. In this eco­system, there are three kinds of animals: console man­ufacturers, game developers, and game publishers. In the early days, console manufacturers made most of the games, but as consoles became more widespread, video-game development became a viable stand-alone business and developers flourished alongside console makers. Taylor selected this industry because the generational cycle between new consoles usually lasts five or six years. During that time, game developers must continue to produce new games that work on the current consoles while remaining flexible enough to adapt old games, or develop new ones, for the next console generation. To do this well, developers must divide their attention among different platforms, learn to use new technology to improve the gaming experience, and link valuable old knowledge with the new. Taylor’s study concentrated on the years 2001 through 2008, during which each of the major console makers introduced new platforms yet no manufacturers entered or exited the market. Taylor culled video-game retail sales figures and narrowed the eligible new games down to 1,884 original developments from a total of 4,449 titles released. Of the 1,884 eligible games, he found that 1,074 were released within a generational cycle and 810 were introduced across generational cycles (within two years of the consoles’ initial release). To draw out patterns from the data, Taylor designated variables that would affect innovation competency. Some of these included “experience in generational change,” the depth of knowledge of game software, technical knowledge of the platforms, platform ownership, and competition among game genres and platforms. Taylor found that “ambidextrous” firms were best at generational innovation—that is, companies that can recognize and stay excellent at the aspects of their skills that retain value while they learn new technologies and business processes. It is important for companies to evaluate not just which of their capabilities are distinc­tive but also which are enduring. Organizations should identify and invest in capabilities that will retain value across multiple foreseeable futures, providing them with a strong core to link with the new knowledge. In terms of platform transitions, the winning companies are those that cultivate the skills that keep them nim­ble and responsive to change. These companies, says Taylor, keep employees from becoming locked into one way of doing things and stay current on industry trends. Some try to buy this knowledge by acquiring other firms, but Taylor prefers that companies do the continuous work that keeps employees sharp. “One of these things includes becoming really good at what you do,” he says. “Once you know an entire genre of games inside and out, it’s much easier to take the genre to a new platform.” Taylor’s study uncovered one more intuitive yet difficult rule: competition is good. Often, he says, companies avoid moving into areas where others already exist, but that only makes them slower and less capable. “Don’t run from competition,” Taylor admonishes. “In fact, when things are changing, run toward competition. Go where the fire is hot. Your people will be better for it.”   A Taylor, “Innovating Within and Across Technological Generations: Learning and Linking,” forthcoming Faculty, News, 2012-01-06T19:22:09+00:00 http://www.tuck.dartmouth.edu/news/articles/a-case-for-change/ http://www.tuck.dartmouth.edu/news/articles/a-case-for-change/ There may be some validity to the saying that “the more things change, the more they stay the same,” but in business, nothing could be further from the truth. If a firm fails to change over time, either by failing to develop new products or by failing to create new ways of operating in response to the fickle demands of the marketplace, it may eventually cease to exist. {media1} Many firms realize this and seek to take advantage of new opportunities by developing new products or making operating changes on an ad hoc basis. Researchers, however, have increasingly drawn a distinction between such reactive change and a firm’s “dynamic capabilities”—its baked-in ability to promote change on a regular basis. These capabilities could be anything from the steps a pharma­ceutical manufacturer takes to discover and develop new drugs to a financial institu­tion’s systematic approach to analyzing new acquisitions. Firms with dynamic capabilities are much bet­ter suited to change nimbly with the market and stay ahead of the competition, says Constance Helfat, J. Brian Quinn Professor in Technology and Strategy at Tuck. “Companies are a lot bet­ter at activities that involve change when they have regular processes for doing them, rather than doing them ad hoc.” However, beyond a handful of individual case studies, very little research has assessed the impact of dynamic capabilities on firm performance. “Case studies are very helpful in informing people about what is going on in individual companies, but they don’t allow you to draw strong conclusions,” says Helfat. She and her colleagues have sought to remedy that with a statistical study that examines the relationship between dynamic capabilities and firm perfor­mance. In earlier research, Helfat differentiated between operational and dynamic capabili­ties. The former enable a company to continue to do what it is doing in more or less the same manner; the latter enable a company to change how it makes a living, such as by changing its operational capacity through new techniques or by changing its “resources” (tangible and intan­gible assets). A capability doesn’t have to promote sudden or dramatic change to qualify as a dynamic capability. In fact, what might look like a com­pany’s doing more of the same may actually represent a significant change in the scale and scope of company resources and operations. For instance, take the expansion of chain retailers such as Walmart or Starbucks. These compa­nies today in no way resemble their humble origins. The capabilities that go into opening those stores are unquestionably dynamic, in that they are directed toward growth—involv­ing the development of supply chains and orga­nizational blueprints that can be replicated worldwide. In her most recent research, Helfat and two fellow researchers examined a similarly incre­mental approach to change in analyzing data from the oil industry. Almost by definition, oil companies are dependent on finding new oil reserves in order to survive. The ways in which firms seek out new oil resources, however, vary enormously according to individual firms’ tech­nological abilities. Because easy-to-discover oil fields have long been exploited, companies now employ increasingly sophisticated means to find and develop new ones. These advances have come in two areas—seismic imaging and drilling—each of which has a clearly recog­nized hierarchy of capabilities. Seismic imaging has developed in three stages, from two-dimen­sional (2-D) to 3-D and even 4-D imaging (which also takes time into account). Drilling, meanwhile, has developed in four stages, from vertical drilling to directional drilling (drilling at an angle) to horizontal drilling (drilling that changes direction underground) to multilateral drilling (drilling that starts vertical and devi­ates to multiple holes). To begin, one of Helfat’s colleagues reviewed some 15 years of annual reports for nearly 250 oil companies to see if and when each company acquired any of these seven distinct stage capa­bilities. The researchers then compared the well drilling performance of the companies to determine the extent to which technological capabilities made a difference. The strength of the results surprised them. First, as capabili­ties increased so did the number of wells that companies drilled, with each one-step increase in technology (for example, from 2-D to 3-D imaging or from vertical to directional drilling) leading to a 48 percent increase in expenditures for exploration of new oil fields and a 27 percent increase in expenditures for the development of existing oil fields. More significantly, indepen­dent of expenditures, performance improved dramatically, with the number of successful wells increasing by 23 percent for exploratory wells and 17 percent for development wells for each step up in capability. Putting these results together, Helfat and her colleagues found that each step up in technolog­ical capability resulted in a 36 percent increase in well drilling success for exploration and a 21 percent increase for development. The compa­nies that stepped up multiple levels in technol­ogy saw the effects multiplied. “Clearly there is a big payoff in the oil industry for investing in these capabilities because they appear to have large returns,” concludes Helfat. And although further research in other industries is needed, Helfat and her colleagues’ rigorous statistical modeling suggests that the results may have implications for other areas as well. While it would seem to make sense that more advanced technologies would increase perfor­mance, explains Helfat, the effect was far above what the researchers anticipated. For compa­nies looking at the bottom line, such data can help them to justify R&D expenditures to dis­cover new ways of doing things rather than fol­lowing tried-and-true techniques. “I don’t think they really understand how much certain capa­bilities will pay off for them,” says Helfat. “It’s important in any industry to think about what capabilities you are using and to routinely think about how to promote change.”   C Helfat, C Stadler, G Verona, “The Impact of Dynamic Capabilities on Resource Access and Development,” working paper Christian Stadler is a lecturer in strategy at the University of Bath School of Management. Gianmario Verona is a professor of management, head of the Institute of Technology and Innovation in the Department of Management, and director of the Ph.D. in business administration Faculty, News, 2012-01-06T19:20:28+00:00 http://www.tuck.dartmouth.edu/news/articles/truth-and-rumors/ http://www.tuck.dartmouth.edu/news/articles/truth-and-rumors/ Imagine you've spent two months negotiating a merger agreement with a target firm. The deal is ready to be signed and announced to the public the follow­ing day. Based on the target's secondary market price of $12, observed at the start of the merger negotiations, you propose a takeover price of $18 per target share. This rep­resents an increase of VP = $6 per share over the target's secondary market price of $12, a premium of 50 percent. Both parties have indicated that such a premium is reason­able for this type of target firm and industry. {media4} Just before signing the agreement, however, the target notes that its stock price has increased significantly over the past two months. The target market price is now $14, a run-up of VR = $2 from its previously assumed stand-alone value of $12. You have not been buy­ing the target company's stock in the market nor is there any reliable public evidence to show who has. So do you go forward with the $18 offer or do you raise it, perhaps to $20? Your answer depends on whether you believe the $2 tar­get run-up represents an increase in the firm's stand-alone value—that is, a permanent increase independent of the merger. Positive events, for example, may have caused a general revaluation of firms throughout the target indus­try during your merger negotiations. In this scenario, raising the bid to $20 would be just fine with the bidder because it would not reduce the bidder's synergy gains from the deal. But what if the target-price increase is the result of deal anticipation triggered by rumors of merger negotiations? Such rumors cause investors to build the expected value of the offer premium into the current price. In this sce­nario, the target market price now consists of the $12 stand-alone value plus an expected offer premium of $2. Raising the offer price to $20 is now costly for the bid­der. It means that the extra $2 is literally paid twice to the target. The target, of course, subscribes to the stand-alone-value scenario and demands that you raise your offer price. Since neither party knows the true source of the run-up, what do you do? While the leading research paper in the area, published in a top academic journal in 1996, claims that run-ups do indeed result in offer price markups, Tuck profes­sor B. Espen Eckbo was not convinced. "We were puzzled by the earlier research conclusion because takeover-bid announcements are often preceded by market rumors and ‘street talk,' which themselves lead to speculative target-price increases," says Eckbo, Tuck Centennial Professor of Finance and founding faculty director of Tuck's Lindenauer Center for Corporate Governance. "Given the rumors, why would bidders agree to raise the offer price by the run-up? We set out to examine this puzzle, and our research in fact reverses the earlier conclusion." To see why, consider figure 1, which shows what hap­pens on average to the market prices of publicly traded targets from two months before through 10 days after the first public announcement of the merger deal (which occurs on Day 0). The figure, which is based on a total sample of 6,150 public targets from 1980 to 2010, shows an average percentage target-price increase over the two months leading up to and including the initial offer announcement of VP = 29%. Moreover, the average preannouncement run-up is VR = 8%. That means the average offer-price markup on top of the run-up is VP – VR = 21%. Recall that earlier, if the parties were to agree that the run-up represents an increase in the target's stand-alone value, the markup will increase from $6 to $8. However, if the parties agree that the run-up simply reflects rumor-induced antici­pation of the deal by the market, the offer premium remains unchanged at $18 and the markup drops by $2, from $6 to $4. This suggests that solving the markup-pricing puzzle requires finding out how markups covary with run-ups in the cross-section of takeover bids. Eckbo and his coauthors attacked this issue by first developing a precise mathematical model for how mar­ket prices ought to rationally respond to rumors of a pending takeover. Their general pricing model, when bidders do not mark up the offer price with the target run-up, has the following simple equation (click images to view full size): Figure 1 {media1} Figure 2 {media2} Figure 3 {media3} Here, π is the rumor-induced probability that a deal will take place. As you can see, the markup VP – VR is highly nonlinear in the run-up VR, a new discovery in the finance literature. "When we took this model to the data, the empirical results were striking," says Eckbo. Figure 2 offers another view of the theo­retical projection in the above equation (1), where the horizontal axis is the target run-up VR and the vertical axis is the offer price markup VP – VR. Figure 3 shows the result of an unconstrained estimation of equation (1) using the 6,150 observations on run-ups and markups underlying figure 1. The similar­ity between the theoretical function in figure 2 and its empirical counterpart in figure 3 is visually dramatic and supported by a battery of statistical tests. In the end, it appears that parties involved in merger negotiations treat target run-ups as phenomena caused by deal anticipation and do not find it necessary to adjust the offer price. "For the first time, bidders now have access to systematic empirical evidence to counter opportunistic target claims that target run-ups should be matched by offer-price markups," says Eckbo.   BE Eckbo, S Betton, R Thompson, KS Thorburn, 2011, "Merger Negotiations with Stock Market Feedback," Tuck School of Business Working Paper 2011–94 Sandra Betton is associate professor of finance at the John Molson School of Business at Concordia University in Montreal. Rex Thompson is professor of finance at the Cox School of Business at Southern Methodist University in Dallas. Karin S. Thorburn is Research Chair Professor of Finance at the Norwegian School of Economics in Bergen. Faculty, News, 2012-01-06T19:16:48+00:00