Loujaine AlMoallim (MBA ’24) interviews Chiara Farronato, Technology and Operations Management Unit at Harvard Business School, and co-Principal Investigator of the Platform Lab at the Digital Design Institute (D^3) at Harvard.
Can you briefly tell us about your journey that got you to where you are today?
Farronato: My journey to academia was quite unexpected. Initially set to join McKinsey as a management consultant, I was living in Belgium when some of my former Masters professors suggested I consider pursuing a PhD. Taking a year off, I applied for PhD programs in the U.S., keeping my McKinsey offer as a backup. Under the McKinsey alternative, I was planning to gain some professional experience before pursuing an MBA, much like many students do. However, when Stanford offered me a PhD opportunity in Economics, it was an offer I couldn't refuse. So, I took the leap, moving from Europe to California. Initially aspiring to be a theorist, I soon realized my strengths lay elsewhere and became fascinated with industrial organization. This field involves studying markets, competition, and decision-making processes of both consumers and companies. My PhD journey began in 2009, a pivotal time when numerous digital platforms like Airbnb and Uber were emerging in Silicon Valley. Being in the heart of this innovation allowed me to collaborate with various companies, ranging from startups like Task Rabbit to giants like eBay. This experience honed my focus on digital platforms, specifically their growth, competition, and regulation. Later, an irresistible offer from Harvard Business School led me to where I am now. The transition from an economics department to a business school has been rewarding, and it's a path I'd gladly choose again.
How has your teaching experience been at HBS so far? What do you like most about the classroom experience?
Farronato: Teaching at HBS is energizing; I thrive on the dynamic energy of the students. If I were to simply lecture, it would not only be dull for the students, but I'd also lack the enthusiasm for the subject matter. HBS's classroom experience is unique, as it actively involves both instructors and students in the learning process. In my course, 'Data Science for Managers,' I resist the urge to merely lecture on concepts like linear regression. Instead, we use asynchronous material for foundational understanding and then delve into its managerial applications in class discussions. This approach ensures that students not only learn but also remember and apply their knowledge, as they're actively involved in the learning process. The case method particularly facilitates this, making the knowledge more memorable since it's the students who articulate and engage with the content. This method might not yield perfect knowledge, but it's practical and lasting. For instance, my teachings in Technology and Operations Management (TOM) have left a lasting impression on many alumni, whether through nightmares (have you heard of cranberries?) or fond memories (does Tessei ring a bell?). I believe this is because of the engaging and practical way we present the material, rather than abstractly teaching it.
Your research focuses on platform growth and the decisions key managers need to make when crafting growth strategies. Could you summarize how these strategies are best crafted and their importance?
Farronato: My research primarily revolves around platforms that need to attract multiple market sides, like Facebook attracting both users and advertisers, or Amazon needing both sellers and buyers. An interesting aspect is the 'flywheel effect' – more buyers attract more sellers, which in turn brings in more buyers. However, initiating this effect is challenging and may not be as potent as one might assume. Previous assumptions about network effects and growth strategies being straightforward and dominant are now being questioned. My studies show that seller responsiveness to demand fluctuations is crucial. Thus, platform managers should focus more on attracting demand once the platform kick-starts. Interestingly, network effects vary in strength across different platforms. For instance, while large platforms like Google or Amazon benefit from strong network effects, others like Uber, Lyft, or Airbnb might not. Consumers often prefer a variety of options. This insight is vital for both regulators and managers, particularly in considering platform dominance and strategic decisions in acquisitions. For example, conglomerates like Expedia and Booking.com maintain separate entities within their group to cater to consumer preferences for choices. The notion of 'winner-takes-all' or 'first-mover advantage' doesn't hold as strong as it did a decade ago.
What recommendations would you give current and future HBS leaders when it comes to growth strategies?
Farronato: The key advice for growth strategies is to focus on developing a robust product with intrinsic value. If your platform is an exchange, like Amazon, ensure seamless transactions and adequate protection for both buyers and sellers. A great example is Airbnb's growth, which accelerated when they introduced host protection against damage to their properties. This addition significantly improved their product, encouraging more hosts to join. The previous trend of rushing to market with a viable minimum product should be approached with caution, as the first-mover advantage is not as decisive as it once was. It's essential to carefully consider the product you're offering and the specific customer segments you aim to attract, whether they're buyers, sellers, or both.
Throughout your journey, what is the greatest lesson you believe you learned, and what is one piece of advice you would give people reading this?
Farronato: The most significant lesson from my journey is the value of empirical testing of theoretical hypotheses. While theories offer multiple perspectives, real-world testing is crucial to understand the actual effects of various trade-offs. Admitting that you don't have all the answers and embracing data analysis to resolve these uncertainties is essential. My advice is to surround yourself with people who possess expertise complementary to yours. As emerging managers with a broad knowledge base, it's vital to understand which areas of expertise you need to supplement. This approach requires acknowledging your limitations and strategically building a team that complements your skills and knowledge.
Loujaine (MBA ’24) is a Saudi Arabian who spent most of her formative years in Canada. After completing her undergraduate degree at McGill University majoring in International Management, she moved back to Saudi Arabia and worked in Consulting.
Chiara Farronato is Glenn and Mary Jane Creamer Associate Professor of Business Administration in the Technology and Operations Management Unit at Harvard Business School, and co-Principal Investigator of the Platform Lab at the Digital Design Institute (D^3) at Harvard. Her research focuses on the growth of digital platforms, such as Amazon and Airbnb. Her work explores key decisions managers need to make when crafting growth strategies that attract new users and intensify use by existing platform participants. At Harvard Business School, she teaches Data Science for Managers in the Required Curriculum, for which she received the 2024 Apgar Award for Innovation in Teaching.