First Look

First Look summarizes new working papers, case studies, and publications produced by Harvard Business School faculty. Readers receive early knowledge of cutting-edge ideas before they enter the mainstream of business practice. For complete details on faculty research, see our Working Papers section.

March 20, 2007

Entrepreneurial ventures designed to fulfill a social need, be it locating affordable housing or supporting the arts, are growing in importance where nonprofits, business, and government intersect. Entrepreneurship in the Social Sector, a book due out in May and coauthored by four Harvard Business School faculty, explains the critical components of this hybrid field known as social entrepreneurship. Readers will find a wealth of case studies that discuss U.S. and international settings as well as analysis of the latest research. The book is intended as an undergraduate or graduate text but the ideas are worthwhile for any manager who wants to stay up-to-date on trends in business, marketing, or public policy.

Also new this week: a working paper for download explains a model for benchmarking retailers' performance in sales, inventory, and gross margin simultaneously; a chapter on leadership in different types of disaster situations; and a case on the business innovations of clothing pioneer Liz Claiborne.

 

Working Papers

Incorporating Price and Inventory Endogeneity in Firm-Level Sales Forecasting

Abstract

As numerous papers have argued, sales, inventory, and gross margin for a retailer are interrelated. We construct a simultaneous equation model to establish these interrelationships at a firm level. Using publicly available financial data we estimate the six causal effects among sales, inventory, and gross margin. Our results show that sales, inventory, and gross margin are mutually endogenous. In particular, we provide new evidence of the impact of inventory on sales and the interrelationship between gross margin and inventory. We also estimate the effects of exogenous explanatory variables such as store growth, proportion of new inventory, capital investment per store, selling expenditure, and index of consumer sentiment on sales, inventory, and gross margin. We show that our model can be used to benchmark retailers' performance in sales, inventory, and gross margin simultaneously. Finally, we show that our model can be used to generate sales forecasts even when sales were managed using inventory and gross margin. In numerical tests, sales forecasts from our model are more accurate than forecasts from time-series models that ignore inventory and price as well as forecasts from financial analysts.

Download the paper: http://www.hbs.edu/research/pdf/07-056.pdf

International Financial Integration and Entrepreneurial Firm Dynamics

Abstract

We explore the relation between international financial integration and the level of entrepreneurial activity in a country. We use a unique firm level data set of approximately 24 million firms in nearly 100 countries in 2004 and 1999, which enables us to present both cross-country and industry-level evidence. We establish robust cross-country correlations between increased international financial integration and the activity of entrepreneurs using various proxies for entrepreneurial activity such as entry, size, and skewness of the firm-size distribution and de jure and de facto measures of international capital integration. We then explore causal channels through which foreign capital may encourage entrepreneurship. We find evidence that entrepreneurial activity in industries which are more reliant on external finance is disproportionately affected by international financial integration, suggesting that foreign capital may improve access to capital either directly or through improved domestic financial intermediation. Second we find that entrepreneurial activity is higher in industries which have a large share of foreign firms or in vertically linked industries.

Download the paper: http://www.hbs.edu/research/pdf/07-012.pdf

 

Cases & Course Materials

Li Ka-Shing and the Growth of Cheung Kong

Harvard Business School Case 407-062

No abstract available.

Purchase this case:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=407062

Liz Claiborne and the New Working Woman

Harvard Business School Case 407-060

At age 47, with two decades of experience as a lead designer for a Fortune 500 fashion company, Liz Claiborne put her life savings on the line to form Liz Claiborne, Inc., a partnership that included her husband. A decade later, in 1986, Claiborne was CEO of her own Fortune 500 company, reaching that milestone faster than any other business up to that point in history. Because the company did not own any of the factories that made its clothing, Claiborne relied upon her detailed understanding of design and manufacturing processes to instruct successfully her American and offshore contractors on how to mass-produce designer clothing at affordable prices. Claiborne was an industry pioneer in many ways. She developed detailed customer feedback collection systems. She and her staff were in frequent contact with department stores to help them present her clothing in display and to customers. In the 1980s, after building up her designer brand name, Claiborne expanded her business through licensing arrangements with quality manufacturers of apparel, shoes, and accessories.

Purchase this case:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=407060

Navigating Turbulent Waters: Glitnir Bank's Communication Challenge during a Macroeconomic Crisis

Harvard Business School Case 107-050

Glitnir Bank is an Icelandic company following an aggressive growth strategy that relies heavily on foreign debt. Access to such debt is suddenly curtailed when there is a downturn in market sentiment regarding the Icelandic economy as a whole. Students will reflect on the essential elements of a communications strategy, including the role of the media and analysts. Class discussion will focus on creating infrastructure that will increase the bank's ability to communicate effectively in an environment of macroeconomic uncertainty.

Purchase this case:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=107050

 

Publications

Entrepreneurship in the Social Sector

Abstract

Written for students and practitioners, this unique text, with Harvard cases, provides analysis and frameworks for achieving maximum impact through social entrepreneurship. Entrepreneurship in the Social Sector enables readers to attain an in-depth understanding of the distinctive characteristics of the social enterprise context and organizations. The authors offer tools to develop the knowledge to pursue social entrepreneurship more strategically and achieve mission impact more efficiently, effectively, and sustainably.

Winning Legally: The Value of Legal Astuteness

Abstract

This paper explores the value of actively managing the legal dimensions of business. It draws on the dynamic capabilities approach and postulates that "legal astuteness"—defined here as the ability of the top management team to communicate effectively with counsel and to work together to solve complex problems—is a valuable dynamic capability. This paper posits that law and the tools it offers are an enabling force legally astute management teams can use to manage the firm more effectively. In particular, it proposes that legally astute management teams can, inter alia, use formal contracts as complements to relational governance to define and strengthen relationships and reduce transaction costs; create options; protect and enhance the realizable value of knowledge assets and certain other resources; and convert regulatory constraints into opportunities.

Behavioral Decision Research, Legislation, and Society: Three Cases

Abstract

In contrast to using controlled laboratory experiments, which offer a clear method for inferring cause-effect relationships, I will be using data from three personal stories to provide opinion and analysis. I will tell the three stories, which come from very different political institutions, in chronological order. The first story deals with a policy-making process at the Securities and Exchange Commission (SEC). The second deals with an administrative legal proceeding regarding anti-trust enforcement by the Federal Trade Commission (FTC), with precedent-setting implications. The last story deals with the Department of Justice's (DOJ) civil lawsuit against the tobacco industry, arguably the largest civil litigation in history. In each story, I will highlight the insights that I see behavioral decision research providing to an important policy context. While I clearly see an important role for economic logic in the policy-making process, I criticize economic theory when used at the exclusion of other social science knowledge. Indeed, my central goal is to provide evidence for the need for social sciences other than economics to be brought to the legal and policy-making domains. Later in the article, I will discuss the role of different theories from social science in the policy formulation process.

"Against Desperate Peril: High Performance in Emergency Preparation and Response." In Communicable Crises: Prevention, Response, and Recovery in the Global Arena, edited by Deborah E. Gibbons

Abstract

What accounts for whether governments will be able to provide effective responses to unfolding disaster events? How can they best be organized to respond to significant emergencies? What must they do in advance to create the capacities they will need in the face of disasters? Answering these questions requires differentiating three different types of disaster situations. Each presents a different set of challenges in both execution and planning, and yields to different forms of leadership. Each requires different skills and processes for effective performance, and therefore, requires different forms of organization, resourcing, skill-building, practice, and other preparation in advance.

"Measuring Performance." In Entrepreneurship in the Social Sector, edited by Jane Wei-Skillern.

No abstract available.