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.

June 26, 2007

Is management a profession? If so, is it a profession on a par with medicine or law? And if not, why not? A forthcoming book by Professor Rakesh Khurana examines the foundations more than a century ago of management education, and describes how the original goals of university-based training have gone offcourse. Due out in the fall, From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession promises to be both a meticulously researched history and a call for reflection and reform.

In the meantime, to preview ideas in the book, check out an HBS Working Knowledge op-ed that Khurana wrote with Harvard Business School's Nitin Nohria and Daniel Penrice a couple years ago.

This week also sees a new paper on the economic impact of export subsidies; and cases including a multipart look at Airbus vs. Boeing; the market strategy behind an alarm clock that both rings and rolls; and Google Advertising.

 

Working Papers

Taxes, Institutions and Foreign Diversification Opportunities

Abstract

Investors can access foreign diversification opportunities through either foreign portfolio investment (FPI) or foreign direct investment (FDI). By combining data on US outbound FPI and FDI, this paper analyzes whether the composition of US outbound capital flows reflect efforts to bypass home country tax regimes and weak host country investor protections. The cross-country analysis indicates that a 10% decrease in a foreign country's corporate tax rate increases US investors' equity FPI holdings by 21%, controlling for effects on FDI. This suggests that the residual tax on foreign multinational firm earnings biases capital flows to low corporate tax countries toward FPI. A one standard deviation increase in a foreign country's investor protections is shown to be associated with a 24% increase in US investors' equity FPI holdings. These results are robust to various controls, are not evident for debt capital flows, and are confirmed using an instrumental variables analysis. The use of FPI to bypass home country taxation of multinational firms is also apparent using only portfolio investment responses to within-country corporate tax rate changes in a panel from 1994 to 2005. Investors appear to alter their portfolio choices to circumvent home and host country institutional regimes.

Download the paper: http://www.nber.org/papers/w13132

Organizational Response to Environmental Demands: Opening the Black Box

Abstract

This paper combines new and old institutionalism to explain enduring differences in organizational strategies. We propose that differences in the influence of corporate departments lead their facilities to prioritize different external pressures and thus adopt different management practices. Specifically, we argue that external constituents who interact with particularly influential corporate departments are more likely to affect facility managers' decisions. As a result, managers of facilities that are subjected to comparable institutional pressures adopt distinct sets of management practices that appease different external constituents. Using an original survey and archival data obtained for nearly 500 facilities, we find support for these hypotheses.

Download the paper: http://www.hbs.edu/research/pdf/07-022.pdf

 

Cases & Course Materials

Airbus vs. Boeing (B): Should Airbus Build the VLCT Alone?

Harvard Business School Supplement 707-448

Supplements the (A) case.

Purchase this supplement:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=707448

Airbus vs. Boeing (C): Developments from 1996 to 1999

Harvard Business School Supplement 707-449

Supplements the (A) case.

Purchase this supplement:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=707449

Airbus vs. Boeing (D): 2000

Harvard Business School Supplement 707-450

Supplements the (A) case.

Purchase this supplement:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=707450

Airbus vs. Boeing (E): 2001

Harvard Business School Supplement 707-451

Supplements the (A) case.

Purchase this supplement:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=707451

CircleLending, Inc. 2006

Harvard Business School Case 206-137

CircleLending, an innovative start-up, offered individuals the ability to set up and manage informal loans made between relatives and friends. The company must decide which market segment to focus on and then how much money to raise from investors. CircleLending is a pioneer in the informal lending market, a largely unstudied and little understood consumer finance segment. Asheesh Advani, the founder and CEO of CircleLending, must evaluate the relative attractiveness of various segments, including housing, small business, and other lending.

Purchase this case:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=206137

Clocky: The Runaway Alarm Clock

Harvard Business School Case 507-016

Gauri Nanda is the creator of an innovative new product: an alarm clock named Clocky that, in addition to ringing, rolls around the room in order to force its owner to get out of bed. Beset by media attention and consumer interest but still at least a year away from the ability to debut Clocky, Nanda must navigate a series of challenges and difficult decisions in order to effectively bring her product to market. These include positioning strategies, choosing the proper channel, potential partnerships, manufacturing issues, market analysis, and PR management.

Purchase this case:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=507016

Demand and Supply Forecasting at Air Products—Electronics Specialty Materials

Harvard Business School Case 107-018

Explores the process and inputs behind financial and operational forecasting in the Electronic Specialty Materials unit at Air Products and Chemicals, a global chemical company. The protagonist, John Goldberg, grapples with how to better integrate the two forecasting processes, while also trying to prepare for unexpected urgent orders and natural disasters.

Purchase this case:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=107018

Google Advertising

Harvard Business School Case 507-038

In mid-2006, Google is the number one search engine in America with 99% of its revenues deriving from its simple, text-only advertising services. It is on track to bring in roughly $9.5 billion in advertising revenue in 2006, which would place it fourth among American media companies in total ad sales, ahead of giants such as NBC Universal and Time Warner. However, it has also begun to explore new ways to expand its online advertising model, experimenting with more elaborate forms of advertising (involving graphics, animation, and video). Google has also begun exploring the radio/television advertising space. Each of these forays is raising a number of key questions for Google, including whether it is possible to reconcile these advertising formats with its current business philosophy.

Purchase this case:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=507038

HCL Technologies (A)

Harvard Business School Case 407-087

When Vineet Nayar became president of HCL Technologies, a global IT services business, in April 2005, he knew the company needed drastic change. Since its founding as a hardware company in the 1970s, HCL had grown into an enterprise with $3.7 billion in revenues and a market capitalization of $5.1 billion. The company had 41,000 employees in 11 countries, but it was ill-prepared for the increasingly competitive market. With the shift from hardware to software and services, HCL had slipped behind its Indian competitors and multinational companies. Details the first phase of the transformation Nayar led in hopes of rejuvenating the industry pioneer. The tagline for this phase was "Employee First, Customer Second." Can be used in strategy, change management and leadership courses.

Purchase this case:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=407087

Kohler Co. (B)

Harvard Business School Supplement 207-025

Supplements the (A) case.

Purchase this supplement:
http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=207025

 

Publications

From Higher Aims to Hired Hands: The Social Transformation of American Business Schools and the Unfulfilled Promise of Management as a Profession

Abstract

Is management a profession? Should it be? Can it be? This major work of social and intellectual history reveals how such questions have driven business education and shaped American management and society for more than a century. The book is also a call for reform. I show that university-based business schools were founded to train a professional class of managers in the mold of doctors and lawyers but have effectively retreated from that goal, leaving a gaping moral hole at the center of business education and perhaps in management itself.

Publisher's site:
http://press.princeton.edu/titles/8463.html

Market Reactions to Export Subsidies

Abstract

This paper analyzes the economic impact of export subsidies by investigating stock price reactions to a critical event in 1997. On November 18, 1997, the European Union announced its intention to file a complaint before the World Trade Organization (WTO), arguing that the United States provided American exporters illegal subsidies by permitting them to use Foreign Sales Corporations to exempt a fraction of export profits from taxation. Share prices of American exporters fell sharply on this news, and its implication that the WTO might force the United States to eliminate the subsidy. The share price declines were largest for exporters whose tax situations made the threatened export subsidy particularly valuable. Share prices of exporters with high profit margins also declined markedly on November 18, 1997, suggesting that the export subsidies were most valuable to firms earning market rents. This last evidence is consistent with strategic trade models in which export subsidies improve the competitive positions of firms in imperfectly competitive markets.

Download paper:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=483483

The Effectiveness of Pre-Release Advertising for Motion Pictures: An Empirical Investigation Using a Simulated Market

Abstract

One of the most visible and publicized trends in the movie industry is the escalation in movie advertising expenditures over time. Yet, the returns to movie advertising are poorly understood. The main reason is that disentangling the causal effect of advertising on movie sales is difficult because of the classic endogeneity problem: movies expected to be more popular (for example, those with a talented director or well-known actor) also receive more advertising. In this study, we use data on a movie's stock price as it trades on the Hollywood Stock Exchange, a popular online market simulation, to study the impact of movie advertising. Since the entire dynamic path of a movie's stock price—a measure of revenue expectations for the movie—prior to release is observed, one can sweep out any time-invariant unobserved factors that affect both advertising and expectations. Furthermore, certain institutional constraints in the advertising allocation process imply that the first-differenced advertising series is plausibly exogenous over the sample period. We find that advertising has a positive and statistically significant effect on expected revenues, but that the effect varies strongly across movies of different "quality." The point estimate implies that the returns to advertising for the average movie are negative.

Why Leaders Lose Their Way

Abstract

Purpose—The authors sought the answer to the question, "Why do so many developing leaders either fail to reach their full potential or cross the line into destructive or even unethical actions?"

Design/methodology/approach—To find out, they interviewed many successful leaders of major organizations and studied the case histories of failed top leaders. The study of unsuccessful leaders revealed a pattern: the failed leaders couldn't lead themselves. On their leadership journey these high potential managers adopted a set of personal behaviors that worked temporarily but were unsustainable in the long run.

Findings—The heroic model of leadership turns out to be merely an early stage—one with risks, temptations, misbehaviors—and one that needs to be outgrown. In contrast, successful leaders who move beyond the hero stage learn to focus on others, gain a sense of a larger purpose, foster multiple support networks, and develop mechanisms to keep perspective and stay grounded.

Research limitations/implications—The authors interviewed 125 successful leaders of major organizations and studied the cases of top leaders who failed.

Practical implications—The five perils of the leadership journey, distinctive destructive behaviors that tend to occur in the hero stage of managers' early careers, are: being an imposter, rationalizing, glory seeking, playing the lone and being a shooting star. These behaviors can be overcome if they are addressed directly.

Originality/value—By identifying five distinctly destructive behaviors that need to be cured at an early stage of a potential leader's career the authors provide a valuable guide for executive development.

Trading Patterns and Excess Comovement of Stock Returns

Abstract

We study the effects of index-linked trading on the excess comovement of stock returns. In April 2000, 30 stocks were replaced in the Nikkei 225 index in Japan. We document a large increase in the correlation of trading volume of stocks added to the index with the volume of stocks that remain in the index, with opposite results for the deletions. After replacement, daily index return betas of the additions rose by an average of 0.45, while the index return beta of the deleted stocks fell by an average of 0.63. We predict changes in autocorrelations and cross-serial correlations of returns, both confirmed with our data. The results are consistent with the idea that trading patterns are associated with short-run excess comovement of stock returns. Our findings suggest that multi-factor risk models could be enhanced by adding factors capturing correlated demand.

The Invariant Proportion of Substitution (IPS) Property of Discrete-Choice Models

Abstract

This article introduces a newly discovered property of discrete-choice models, which I call the Invariant Proportion of Substitution (IPS). Like the Independence from Irrelevant Alternatives (IIA) property, IPS implies individual behavior that is counterintuitive in the context of choice among similar alternatives. But models that alleviate the concerns raised by IIA, such as generalized extreme value and covariance probit models, do not necessarily alleviate the concerns raised by IPS. I explore the implications of the IPS property on individual behavior in several choice contexts and discuss some models that alleviate the concerns raised by IPS.