Old school is oddly cool

Surprise. Stodgy Harvard Business School covers Net companies better than those screaming Net headline services.



Scott Kirsner
September 5, 2000 10:35PM (UTC)

A parade of Charles River rowers passed under the JFK Street bridge as Sterling Powell headed for her first day of orientation at Harvard Business School. It was a brilliant late-summer day, but Powell's mind was clouded with questions: Would the two-year-long, $50,000-plus MBA program prepare her for a job in the Internet economy? Would there still be an Internet economy in two years? As a HomeRuns.com delivery truck rumbled past her on the bridge, it seemed as if the ground was shaking beneath Powell's feet.

At the core of the curriculum at the august Harvard Business School are case studies, written in the style of the paragraph above, that use nonfiction narratives to teach students analytical skills and decision making. "Harvard Business School brings the complex realities of business into the classroom in a variety of powerful ways," states the school's Web site. "Through the case method and other learning techniques, students examine problem-focused situations in ways that are managerially relevant, intellectually and emotionally engaging, and highly interactive." The typical course at HBS examines 20 to 30 cases in a semester.

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Given how quickly the Internet is changing the business universe, and how difficult it has proved for start-ups and established firms alike to pick out a profitable path, I was curious whether HBS professors were doing a good job keeping pace with the evolution -- and extinction -- of various Internet business models and technologies. At a time when Web reportage and e-mail bulletins are just about the only things that seem current, and even newsweeklies like the Industry Standard sometimes read like Herodotus, how could HBS' cases -- which typically take four or five months to produce -- possibly be relevant?

To answer those questions, I read more than a dozen recently published cases on Internet companies like Priceline.com, Autobytel.com, Yahoo and Drugstore.com, and non-Internet companies developing digital strategies, like RCA Records and Staples.

This much is clear: In the past five years, the emergence of the Internet as a mainstream medium -- and business platform -- has forced HBS's professors to kick into case-writing overdrive. The school took an informal count last November and found more than 200 e-commerce cases. Tom Eisenmann, who teaches a perennially oversubscribed course called "Managing Marketspace Businesses," wrote 13 new cases during the 1999-2000 academic year alone, on companies like Teledesic, Starmedia and CNet. Fieldwork on the Teledesic case was finished during the second week of January, and Eisenmann taught the case the following week.

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"In the old days -- as recently as three years ago, when I taught a course called 'Service Management' -- you could give students a case that was several years old, and most of the people in the room would be happy to project themselves into that time and place," says Eisenmann. "You can't do that anymore. Students all live and breathe this [Internet] stuff. They all know, for instance, that CNet acquired ZDNet." So Eisenmann and other professors either write updates to existing cases or provide pointers on the HBS intranet to news articles that cover recent developments.

But while Harvard profs have been feeling the same pressure as the mainstream media to cover the hot dot-com companies in a timely way, they haven't made the same kind of attitudinal shift as the rest of the media, which abruptly went from composing gushy valentines to doing drive-by disembowelments. The case studies of Internet start-ups and Internet initiatives at big companies they've written manage to convey the excitement of exploring new terrain while always acknowledging that just about anything could go wrong.

After all, HBS professors have been transforming real-world business scenarios into cases and using them to teach leadership skills since 1912. Plenty of promising companies whose strategic decisions had been debated in the repro-Georgian HBS buildings on the banks of the Charles River had fizzled before the Internet came along. "It's always possible for people to get overly enthusiastic and overly pessimistic about things that are happening right now," says professor Joe Lassiter, who teaches a course on entrepreneurial marketing. "Our job is to pick a path through the middle of that."

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Harvard Business School cases are a genre unto themselves. They're objective and hype-free, and they take an intensive, gastroenterological approach to explaining how a business works. The authors don't indulge in the kind of bravado and hubris that has characterized dot-coms, but they do let executives paint their own flowery pictures, as in a case on Priceline.com in which CEO Richard Braddock is quoted as saying, "It's obvious to everyone that Priceline is working extremely well ... We've done a great job at building our brand."

But by the end, the authors always return to the kind of questions that keep company founders awake at night, which are known in HBS-speak as "trigger issues." In Priceline's case, for example, was it wise to plaster the Priceline brand all over groceries, gas and home mortgages, and would the company somehow be able to cut its losses and increase its margins even as it expanded into all those new categories?

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The case studies are kind enough to current management to get its representatives to come visit HBS classes in person -- as they often do -- but they're also skeptical enough to prompt plenty of second-guessing in the classrooms, where the professor stands in the center of a horseshoe-shaped array of desks like an orchestra conductor, eliciting opinions from students and propelling the discussion forward.

HBS cases often open with a novelistic attempt at scene setting. Usually, this comes off cheesily: "On a clear day in August 1999 in the new headquarters of Drugstore.com, against a backdrop of the Blue Angels flying in formation over Lake Washington ..., [CEO] Peter Neupert was pleased with his company's IPO performance." Or, in a first paragraph that brings Tom Clancy to mind, "Lincoln Millstein, chief executive officer of Boston.com, peered out the jet window at Boston's hazy skyline. Only two nights before, on July 16, 1999, similar conditions had contributed to the tragic crash of John F. Kennedy Jr., who had been piloting his private plane to nearby Martha's Vineyard." Yes, there is a point here: News of the Kennedy crash lifted traffic to Boston.com to record levels.

The professors and research associates who produce HBS cases get unusually good access to the companies they're writing about. Part of it is due, no doubt, to the prestige factor of being selected by Harvard Business School to illustrate some (presumably positive) aspect of how your company does business. Companies featured in cases are invited to visit HBS when their cases are presented, which many see as an opportunity to recruit some of the top MBA candidates there. There's also likely a perception that the cases will be seen only by business school students and not the general public, which is, for the most part, true. (Those in the know can buy cases a la carte at the Harvard Business School Publishing site.)

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So HBS cases include company organizational charts, internal memos, PowerPoint slides and spreadsheets that you'd never see anywhere else. The case on Boston.com (a former employer of mine), for example, includes a breakdown of the revenue the site earns from real estate classifieds, help wanteds and auto ads -- data far too granular to ever appear in a Securities and Exchange Commission document and of special interest to other newspaper sites and city guides that sell advertising in those categories. In the Autobytel.com case, HBS professor Youngme Moon did the kind of legwork that would make a Pulitzer Prize winner proud: She found a car salesman in the Boston area willing to compare the number of new- and used-car sales that Autobytel generated for his dealership each month with those generated by AutoVantage -- including gross margins.

What's surprising about the sample of HBS Internet cases I examined is how little the day-to-day competitive jousting and bombastic announcements of new products and partnerships really affect the fortunes of a company. The HBS cases don't ignore that market noise entirely, but they acknowledge its existence and then they filter it out to concentrate instead on the kinds of questions that rarely get answered in short order.

In the place of screaming headlines about online drugstores' once-astonishing market caps, their pricey advertising plays or the deals they cut with online retailers like Amazon.com, the HBS cases on CVS.com and Drugstore.com focus on their far less sexy-sounding relationships with big pharmacy benefit managers, who approve nearly 90 percent of all prescription drug expenditures for health plans. In the case of Texas grocery chain H.E. Butt, the issue is how the company can use the Net to improve supply chain management, and how it might offer services competitive with the HomeGrocers and Webvans of the world without destroying the company's wafer-thin profit margins. In a case on online investment bank Wit Capital, the question is, How can Wit continue to provide value to stock issuers as other investment banks' Net services become more sophisticated?

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Even when cases are a bit dated -- missing some major new development -- they are valuable because of their focus on the kind of foundational debates that will determine whether the company in question will wind up with a Sears Tower or a Leaning Tower. The case titled "RCA Records: The Digital Revolution," published last fall, doesn't contain a single mention of Napster or Gnutella, but those developments can be plugged in easily. They are simply technologies that accelerate and accentuate the central questions that the case does address: How will digital distribution impact RCA's business model and its relationships with its artists?

HBS case writers often add just a few splashes of new material to make a case that much more potent. A supplement to a case on the acquisition of BizTravel.com by traditional travel agency Rosenbluth International contains a sample of BizTravel's recent advertising campaign about "The BizTravel Guarantee." This promotional campaign, launched in the spring, promised refunds for travelers whose flights were delayed or canceled. While the case study concentrates on how the online and offline groups would cooperate, and when the online group would break even, the inclusion of the ad brings up a question that could support an entirely new case: When do brash promotions pay off in increased market share, and when do they needlessly delay the path to profitability?

There are cases that have gone stale, of course. A 1998 case on Excite, written before its merger with @Home, makes the portal wars seem as recent and relevant as the Spanish-American War. But two things were remarkable about the cases I looked at: first, how pertinent the underlying business issues in most of them still seemed, and second, what a good job they did of balancing the adrenaline-saturated experience of sealing a crucial deal or going public with the ever-present perils that most of the media were happy to ignore. (Yes, I confess to sometimes being part of that group.) In the world of the HBS case, opportunities for strategic gaffes are much more plentiful than opportunities to do the right thing. Just like the real world.

Cases offer the ultimate opportunity to armchair-quarterback a business situation, and part of the fun of class time at HBS is arguing over which course of action would have scored the most points or avoided the most jarring hits. (That's hard to replicate when you're reading them on your own, unless you're able to hold "Crossfire"-style conversations in your head.)

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As students return to campus this week, some of the newest cases they'll consider are those chronicling e-tailer failures. The first gathering of the popular "Managing Marketspace Businesses" course, for instance, will be a discussion about PetStore.com and Boo.com. In fact, Eisenmann had planned to teach his PetStore.com case last spring, but the company's founders, he says, "weren't eager to come into the class while [their company] was going off the rails." (Eventually, PetStore was subsumed into Pets.com.)

There are also cases in the works that will look at how dot-com survivors evaluate their flailing competitors as potential acquisitions and how companies confront stock prices that have imploded. "We're doing our third case on Chemdex [which recently changed its name to Ventro] now," says professor Lassiter, one-time president of Wildfire Communications. "Chemdex went public last September, and the stock went to $240. Now it's around $14. What do they do now? Between the Internet and globalization, you've got to create new materials very quickly."

But while HBS's professors plan to keep turning out new cases and crafting updates, they're not likely to turn their courses into a semester-long series of autopsies. The mainstream media may be having a ball chronicling the splashdowns of a handful of well-known, and not so well-known, Net start-ups that flew too close to the sun, but Lassiter, who has just written a case on optical-networking pioneer Sycamore Networks -- so far an unqualified success -- says that case studies of dead dot-coms simply aren't that rich in instructional value.

"Yes, there is something to be gained [by] studying flameouts," he wrote in an e-mail, "but less than you might think. There are 10,000 ways to screw up a business, and far fewer ways to make it truly succeed." Studying success and analyzing how it was attained, Lassiter concludes, are a much more useful pedagogical approach.

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What you learn from reading a batch of HBS Internet cases is that after all the confetti has been swept away, the fundamental things still apply. Attaining success, for pure plays and established firms alike, is going to be a lengthy trek, not the jaunt to the corner many perceived it to be. The good news for future case writers: The trekkers will encounter plenty of new trigger issues along the way.


Scott Kirsner

Scott Kirsner is a Boston writer who covers business and technology for Fast Company, Boston Magazine, Wired, and CIO.

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