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Teaching Note for HBS Nos. 817-126 and 817-127.

This is the second in a set of two Readings on Modern Portfolio Theory. It presumes readers have already read "Risk and Return 1: Stock Returns and Diversification" (#5220). This Reading starts by examining the effect of diversification on portfolio volatility, graphically and mathematically, for different levels of correlation among portfolio assets. Next, it compares portfolios and defines the concepts of efficiency and the efficient frontier. It introduces a riskless asset and uses it to identify the tangency portfolio and to define the Sharpe Ratio as a way to compare excess returns to risk. The discussion demonstrates how borrowing and lending can create any portfolio along the line between the risk-free rate and a portfolio in mu-sigma space, and it presents the two-fund separation theorem. Finally, the Reading considers the problem of whether to add a small amount of a risky asset to an existing portfolio as a way to derive the Portfolio Improvement Rule, before concluding with general equilibrium and the Capital Asset Pricing Model (CAPM). Topics covered in the Supplemental Reading section include estimation of betas, the equity market risk premium, and real-world application of CAPM, and criticisms of CAPM, both theoretical and practical. The Reading contains six web-based interactive illustrations. The first shows the decline in the volatility of a portfolio's returns as the number of stocks in the portfolio increases from two to 30. The second is the same as the first but allows the reader to specify the correlation among the 30 stocks. The third shows the region in mu-sigma space that includes all possible portfolios for five risky assets, the "broken eggshell" shape. The fourth shows possible portfolios composed of two assets when one of the assets is risk-free. The fifth illustrates how the tangency portfolio and Sharpe ratio are determined. The sixth illustrates the Portfolio Improvement Rule.

This Reading helps readers understand that financial ratios-one financial statement item divided by another-are used to create useful metrics. In other words, the inputs or financial items are derived from the financial statements. The reading also shows how ROE is calculated using three ratios: profit margin, operation efficiency, and financial leverage.

This is the first in a set of two Readings on risk and return. It introduces the ideas of financial risk and return, at first intuitively, with a discussion of investor risk aversion and tradeoffs, and then formally, with a basic explanation of pertinent statistics. It introduces probability distributions and their parameters-mean and standard deviation-as measures of expected return and risk. Using sample statistics from historical returns as coordinate pairs, it plots asset classes in mu-sigma space to give a graphical representation of risk and return, and defines dominance. To cement understanding, the text steps through calculations of risk and return statistics from historical price data for Microsoft to mu-sigma space. The second half of the reading covers the co-movement of stock returns using sample covariance, beta, and correlation computed for pairs of risky assets. Scatter plots and linear regression are introduced to calculate beta. The Reading introduces essential portfolio math, with portfolio weights and correlation coefficients. It shows that a portfolio's risk is lower than the weighted average risk of its component assets if the assets are not perfectly positively correlated. This fundamental statistical property gives rise to the economics of diversification. The Reading contains 7 web-based Interactive Illustrations. The first demonstrates the Central Limit Theorem. The second ensures a solid understanding of how returns are calculated from prices and dividends. The third shows how to create a histogram.

The U.S. Patent and Trademark Office (USPTO) is the federal government agency responsible for evaluating and granting patent and trademark applications. In 2015, the USPTO employed approximately 8,000 patent examiners who granted nearly 300,000 patents to inventors. As of April 2016, it took roughly 26 months for a patent application to move through the evaluation process, which exceeded the office's processing goal of 20 months. In August 2016, Andrew Hirshfeld, the commissioner for patents at the USPTO, considered the current state of patent examination and future possibilities. In recent years, a number of new and exciting tools enabled by advances in telework, machine learning, and other approaches had emerged. Hirshfeld hoped to maximize these tools' utility in order to enhance patent examiners' work and productivity. Helping examiners become more productive could in turn help the USPTO achieve its joint goals of processing patent applications more quickly and granting better quality patents. But the new tools and organizational changes would bring challenges too. Any changes would have to be implemented at the grassroots of the USPTO organization, and ongoing pilots would not be successful without the buy-in and cooperation of both individual examiners as well as the union.

Read any news report on the housing market, and inevitably it will include facts or figures from the real estate data giant Zillow.com. The company initially set out to solve two key economic frictions in the real estate industry-information asymmetry and the principal-agent problem-by empowering users to access real-time housing data and eliminating the need for realtors. The company soon realized, however, that American homeowners and buyers were not willing to give up the traditional real estate agent model and changed course. In the end, Zillow decided to join-rather than replace-the middlemen in the real estate industry.

The Indian Space Research Organization (ISRO) achieved global acclaim by launching successful missions to the moon and Mars at a fraction of the cost of prior Western missions. It is now faced with an important strategic dilemma-whether to continue exploring deep space in collaboration with NASA and other leading agencies, whether to leverage its infrastructure for societal uses, or whether to exploit a commercial opportunity related to launching small, handheld cubesats. The case explores the basis for ISRO's cost advantage vis-à-vis western entities, as well as its resource constraints and human capital considerations as it makes this important strategic choice for the future.

Seventh Generation, a sustainable cleaning and personal care products company, has received a purchase offer from Unilever. Seventh Generation's CEO is deciding whether to accept the offer and, if so, under what terms. The deal would open many new avenues for growth and expansion for Seventh Generation, but would they be able to continue to pursue their mission "to inspire a consumer revolution that nurtures the health of the next seven generations" under the ownership of Unilever? Could Seventh Generation impact the values of Unilever to make both organizations more sustainable?

This technical notes answers the questions: What does the competitive landscape look like to a given competitor? Which firms does the competitor regard as its chief rivals? Critically, what actions is the competitor likely to take?

In January 2016, two entrepreneurial brothers attended an academic conference on small business and entrepreneurship to sell their product, the Online Venture Challenge, a web-based software-as-a-service retail simulation system. The brothers also hoped to demonstrate their second product idea, Launchboard, an interactive product that enabled users to make development plans and record their progress. Both products were intended as tools for entrepreneurship educators. The brothers did not have much success selling their first product during the conference, but two professors wanted to use Launchboard that semester. The brothers needed to decide how to position their product line. Should the Online Venture Challenge be promoted as one primary product that offered multiple complementary features? Or should their two products be positioned as two separate but complementary products? Or was it better to have two stand-alone products and two corresponding businesses? The brothers needed to better understand their own business ideas to determine the approach they should take. Fittingly, Launchboard, the new tool they had created, might actually help them to do just that.

Supplement to case W17212.

Strategically important projects involve high stakes, uncertainty, and stakeholder complexity, with contingencies and risks typically surfacing repeatedly as the project evolves. This is challenging not only for the project team (PT) but also in particular for the steering committee (SC), the top management oversight structure typically used to align a project with the organization's strategic goals. This article explores how senior executives on SCs can exercise leadership and effective oversight of strategic projects, although they have only limited time and often incomplete expertise. The SC can keep a project aligned, even with limited time, through focused understanding of the key logic and drivers of the project. The SC needs to manage the surprises and crises that inevitably arise in a difficult project through proactive analysis that goes to the bottom of the problem and by working with the PT to generate solutions.

In recent years, word-of-mouth (WOM) marketing has been the subject of considerable interest among managers and academics alike. However, there is very little common knowledge on what drives the value of WOM programs and how they should be designed to optimize value. Firms therefore frequently rely on relatively simple metrics to measure the success of their WOM marketing efforts and mainly use rules of thumb when making crucial program design decisions. This article proposes a new method to measure WOM program value that is based on the impact of WOM on the firm's customer equity. It then provides recommendations for the five main questions managers face when planning a WOM program: Who to target? When to launch the program? Where to launch it? Which incentives to offer? and How many participants to include?

Keith Sherin, CEO of GE Capital, faced a decision on which hinged billions of dollars and the fate of one of America's most storied companies. On his desk sat two secret analyses: Project Beacon, a proposal to spin off most of GE Capital to GE shareholders, and Project Hubble, a proposal to sell off GE Capital in parts. A third document sketched out the implications should GE "stay the course" on its present strategy: a continued, massive build-up of regulatory and compliance personnel to meet GE Capital's obligations as a "SIFI"-systemically important financial institution-in the wake of the 2010 Dodd-Frank Act. No path forward was clear. A divestiture, either through a spin-off or sell-off, would reduce GE's size and financial connectedness and address market unease about GE's position as the seventh-largest U.S. financial institution. It would also unlock substantial value not currently reflected in the stock. Each faced major obstacles and execution risks, however. In particular, no one knew the precise cut-off for a SIFI designation or the time required to shed the designation. If the process took too long, or generated unexpected costs, a divestiture might destroy more value than it would create. Retaining GE Capital was risky, too, of course. Which set of risks was the right one to propose that the GE board accept?

Korea Telecom has committed $4billion in investments and R&D to build a GiGAtopia, essentially ushering in the next generation of mobile (5G) and wired infrastructure. CEO Dr. Hwang and his team are considering which areas to prioritize in terms of new products and services in development. The top five sectors identified by KT's team include Internet of Things (including connected cars and smart city/homes), media, health, energy, and security and surveillance. Which might provide some quick wins both in terms of revenues and market lead. Should KT develop solutions that could be exported to other countries? Should KT go all in across all five sectors, or select one or two to prioritize?

The first part (A) of the case study refers to Asia Genomics Holdings, founded by Dr. Wong Mun Yew in 2014. Asia Genomics considered itself a pioneer in genetic testing in Asia with the aim of providing safe, accurate and timely genetic testing for people with regard to commonly occurring cancer, and foetal health conditions. The technology it used was brought over from the US. The tests were simple to administer, client samples were securely handled, and generated reports that would include recommendations for clients and their doctors on next steps after diagnosis. Part B of the case is about Imagene Labs, which was created in 2016 as a new sister entity under Asia Genomics Holdings to provide genetic testing for wellness in fitness, nutrition and skin. It operated independently from the Asia Genomics business that carried out genetic testing for cancer. The recommendations for clients would come with customised nutritional supplements or facial serums to target their specific genetic conditions. Clients who had tried the product were generally pleased with the depth of the report findings and the results of the customised products. Imagene Labs had been seeing relatively quick uptake of their products and interest in the consumer market. Although Asia Genomics and Imagene Labs had clear value propositions to offer their target markets, marketing was still the biggest challenge. Beyond that, both businesses had to plan a strategy for the development of their respective future business models. This case targets participants who are interested in understanding the organisational capabilities for implementing a business model in the healthcare industry. Participants can use the business model canvas to understand the integral components of a business model, and to innovate an existing business model.

The first part (A) of the case study refers to Asia Genomics Holdings, founded by Dr. Wong Mun Yew in 2014. Asia Genomics considered itself a pioneer in genetic testing in Asia with the aim of providing safe, accurate and timely genetic testing for people with regard to commonly occurring cancer, and foetal health conditions. The technology it used was brought over from the US. The tests were simple to administer, client samples were securely handled, and generated reports that would include recommendations for clients and their doctors on next steps after diagnosis. Part B of the case is about Imagene Labs, which was created in 2016 as a new sister entity under Asia Genomics Holdings to provide genetic testing for wellness in fitness, nutrition and skin. It operated independently from the Asia Genomics business that carried out genetic testing for cancer. The recommendations for clients would come with customised nutritional supplements or facial serums to target their specific genetic conditions. Clients who had tried the product were generally pleased with the depth of the report findings and the results of the customised products. Imagene Labs had been seeing relatively quick uptake of their products and interest in the consumer market. Although Asia Genomics and Imagene Labs had clear value propositions to offer their target markets, marketing was still the biggest challenge. Beyond that, both businesses had to plan a strategy for the development of their respective future business models. This case targets participants who are interested in understanding the organisational capabilities for implementing a business model in the healthcare industry. Participants can use the business model canvas to understand the integral components of a business model, and to innovate an existing business model.

Planetary Resources, Inc. (PRI) had a bold, some said crazy, vision: to mine asteroids. One might have assumed that developing the right technology would be the greatest challenge facing PRI. But even if the fledgling company could develop and deploy the sophisticated imaging, prospecting, and communication capabilities required for mining asteroids, two additional obstacles meant success was not guaranteed. First, uncertainty remained over whether, and how, property rights to resources mined in space would be enforced. PRI's leadership's challenge was to anticipate, and perhaps shape, how this uncertainty would be resolved. Making that balancing act more difficult was a second factor: a complex and underfunded U.S. regulatory infrastructure that threatened to slow PRI's progress and escalate costs.

In 2017 Wal-Mart was still the world's largest company, with over $480 billion in annual revenue and operations in 28 countries. Although it had mostly vanquished its rival discount retailers in the U.S., it was struggling to find the right growth strategy. Facing a mature U.S. market, it had looked to international sales as an engine of growth in the early 2010s, but international sales had also stagnated over the past few years. Wal-Mart's leadership had targeted the rapidly-growing e-commerce arena as strategic priority, but there it faced intense competition from dominant online retailer Amazon. In such a competitive environment, how should Wal-Mart respond to the reality that its traditional strengths no longer guaranteed robust growth?