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.

May 28, 2008

Does the prospect of a lump-sum bonus induce salespeople to work harder, providing real benefits to the firm? Or does this kind of incentive make it more likely that salespeople will rather play numbers games so as to increase their payments but leave the firm little to show for it?

A forthcoming article by HBS professor Thomas J. Steenburgh suggests the former is the more likely outcome. In "Effort or Timing: The Effect of Lump-Sum Bonuses," Steenburgh finds that, contrary to expectations from other academic research, bonuses mostly do what they aim to do: inspire greater work.

New cases include a look at China's presence in Sudan; and the quandary facing Mellon Financial as it is valued at a discount prior to what is supposed to be a merger of equals with The Bank of New York.

 

Working Papers

Agency and Institutions: A Review of Institutional Entrepreneurship

Abstract

This paper analyzes the literature that has been published on institutional entrepreneurship since Paul DiMaggio introduced the notion in 1988. Based on a systematic selection and analysis of articles, the paper outlines an emerging consensus on the definition and process of institutional entrepreneurship. It also presents the previously identified enabling conditions for, and reviews the research methods that have been applied to the study of, institutional entrepreneurship. Finally, the paper highlights future directions for research on this topic. Researchers are encouraged to use this paper to build sophisticated, targeted research designs that will add value to the growing body of literature on institutional entrepreneurship.

Download the paper: http://www.hbs.edu/research/pdf/08-096.pdf

Shamed and Able: How Firms Respond to Being Rated (Revised May 2008)

Abstract

We examine how firms respond to third-party ratings of their corporate environmental activities. Using insights from institutional theory, we hypothesize that ratings are particularly likely to spur responses from firms whose legitimacy is threatened—and thus are shamed—by these ratings. We extend existing theory by drawing on the strategic choice perspective to hypothesize that the greatest performance improvements will be exhibited by those shamed firms that face lower-cost opportunities to improve—-and thus are particularly able to respond. We take advantage of a natural experiment, when a major social rating agency expanded the scope of its ratings, to empirically test these hypotheses in the context of environmental ratings and environmental performance of more than 650 firms in the United States. We find empirical evidence that supports our hypotheses and present implications for theory and public policy.

Download the paper: http://www.hbs.edu/research/pdf/08-025WP.pdf

 

Cases & Course Materials

China in Africa: The Case of Sudan

Harvard Business School Case 308-060

This case examines the relation between China's demand for resources and political risk.

Purchase the case: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=308060

Mellon Financial and The Bank of New York

Harvard Business School Case 208-129

Bob Kelly, the new CEO of Mellon Financial, is considering the terms of a proposed "merger of equals" with The Bank of New York, just before the final Board meeting to approve the deal. The combination offers a great strategic fit, and the expected synergies are large. However, the proposed exchange ration values Mellon at a discount to its last closing price, even though it is the smaller and non-surviving bank. Kelly must consider the various dimensions of the deal—specifically the value of synergies, the form of consideration, and the deal's impact on the EPS of both sides—and determine whether it is in the best interests of Mellon, the city of Pittsburgh, and Mellon's shareholders.

Purchase the case: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=208129

KIPP 2007: Implementing a Smart Growth Strategy

Harvard Business School Case 308-073

After opening 60 schools in eight years through opportunistic growth, the national office of the KIPP schools network has designed a strategy dubbed "smart growth." Each KIPP school is a separately incorporated entity led by a principal who was selected and trained by the national office. The national office proposes to play a screening role whereby a national growth committee will "green-light" the plans of local schools to create multi-site regions in selected areas of the United States. The case describes the criteria and rationale for the new strategy, and focuses on a disguised application from a KIPP school that plans to grow from one to five locations in five years. Readers are challenged to green-light the application, or not.

Purchase the case: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=308073

Flying J.

Harvard Business School Case 508-074

The largest retailer of diesel fuel in the U.S., Flying J, is rethinking its growth strategy as the economy goes into a recession. Its major customer base, owner-operated truck drivers, are facing increasing costs of doing business. Yet Flying J is considering whether to increase its price of diesel fuel.

Purchase the case: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=508074

Adelphia Communications Corp.'s Bankruptcy

Harvard Business School Case 208-071

In 2002, a massive accounting fraud and corporate looting scandal involving the founding Rigas family made Adelphia the 11th largest bankruptcy case in history, and the third—after WorldCom and Enron—among those triggered by fraud. Set in 2005, when Adelphia is contemplating several options to emerge from bankruptcy, including a $17.6 billion cash-and-stock offer from Time Warner and Comcast, a $17.1 billion cash-only offer from Cablevision, and a $15 billion cash-only offer from KKR and Providence. The fact that both Comcast and Cablevision are themselves family-controlled and with a large wedge between the family's ownership and control rights further complicates the decision.

Purchase the case: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=208071

Fortis Healthcare (A)

Harvard Business School Case 308-030

Should the Indian hospital chain enter the medical travel market or should it focus on expansion in the under-served Indian market? Is its business model appropriate to its goals?

Purchase the case: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=308030

Can PACIV (Puerto Rico) Serve European Customers?

Harvard Business School Case 808-099

Jorge Rodriguez-Gonzalez, PACIV's (Puerto Rico) founding CEO, is considering expanding PACIV's pharmaceutical manufacturing compliance services company to the U.K. and Europe. He has to decide whether to hire Wayne Snelgrove and how to define the scope of his responsibilities.

Purchase the case: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=808099

The Elcer Products Transaction: Confidential Information for Euro Elektrische Keramische Vorrichtungen (Euro EKV), GmbH

Harvard Business School Exercise 908-033

In a six-party negotiation exercise, the TNDA Corp. plans to sell the Elcer Products Division to one of four potential buyers (industrial, financial, U.S., German). This case contains confidential information for the Euro Elektrische Keramische Vorrichtungen, GmbH (Euro EKV) management role. Challenges include how to set up and implement the most promising sale process, come up with the right deal, and choose the best tactical approach given each party's role and objectives. This negotiation exercise draws on and illustrates the "3-D Negotiation" logic of Lax and Sebenius.

Purchase the exercise: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=908033

The Elcer Products Transaction: Confidential Information for Pearl Equity Partners

Harvard Business School Exercise 908-031

In a six-party negotiation exercise, the TNDA Corp. plans to sell the Elcer Products Division to one of four potential buyers (industrial, financial, U.S., German). This case contains confidential information for the Pearl Equity Partners management role. Challenges include how to set up and implement the most promising sale process, come up with the right deal, and choose the best tactical approach given each party's role and objectives. This negotiation exercise draws on and illustrates the "3-D Negotiation" logic of Lax and Sebenius.

Purchase the exercise: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=908031

The Elcer Products Transaction: Confidential Information for RubyFibre Enterprises

Harvard Business School Exercise 908-035

In a six-party negotiation exercise, the TNDA Corp. plans to sell Elcer Products Division to one of four potential buyers (industrial, financial, U.S., German). This case contains confidential information for the RubyFibre Enterprises management role. Challenges include how to set up and implement the most promising sales process, come up with the right deal, and choose the best tactical approach given each party's role and objectives. This negotiation exercise draws on and illustrates the "3-D Negotiation" logic of Lax and Sebenius.

Purchase the exercise: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=908035

The Elcer Products Transaction: Confidential Information for TNDA Corporation

Harvard Business School Exercise 908-034

In a six-party negotiation exercise, the TNDA Corp. plans to sell the Elcer Products Division to one of four potential buyers (industrial, financial, U.S., German). This case contains confidential information for the TNDA Corporation management role. Challenges include how to set up and implement the most promising sale process, come up with the right deal, and choose the best tactical approach given each party's role and objectives. This negotiation exercise draws on and illustrates the "3-D Negotiation" logic of Lax and Sebenius.

Purchase the exercise: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=908034

The Elcer Products Transaction: Confidential Information for US Industrial ElectroCeramics (US-IND)

Harvard Business School Exercise 908-032

In a six-party negotiation exercise, the TNDA Corp. plans to sell the Elcer Products Division to one of four potential buyers (industrial, financial, U.S., German). This case contains confidential information for the US Industrial ElectroCeramics (US-IND) management role. Challenges include how to set up and implement the most promising sale process, come up with the right deal, and choose the best tactical approach given each party's role and objectives. This negotiation exercise draws on and illustrates the "3-D Negotiation" logic of Lax and Sebenius.

Purchase the exercise: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=908032

The Elcer Products Transaction: Confidential Information for Elcer Products Division President

Harvard Business School Exercise 908-036

In a six-party negotiation exercise, the TNDA Corp. plans to sell Elcer Products Division to one of four potential buyers (industrial, financial, U.S., German). This case contains confidential information for the Elcer Divisional management role. Challenges include how to set up and implement the most promising sales process, come up with the right deal, and choose the best tactical approach given each party's role and objectives. This negotiation exercise draws on and illustrates the "3-D Negotiation" logic of Lax and Sebenius.

Purchase the exercise: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=908036

Ti-Tech (A)

Harvard Business School Case 508-095

This case concerns the selection and scheduling of orders by a small industrial titanium fabricator that recently has been plagued by poor deliveries and a lack of capacity. At the time of the case, Ti-Tech must decide which of four orders to accept, with capacity making it impossible to accept all four. Each order represents a different mix of labor, revenues, and potential future work. The case forces the student to choose among the four orders, given limited capacity available, other business likely to come along, and the requirements of each order. The case is an updated version of Fabtek (A).

Purchase the case: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=508095

Ti-Tech (B)

Harvard Business School Supplement 508-096

Supplements the (A) case.

Purchase the supplement: http://www.hbsp.harvard.edu/b01/en/common/item_detail.jhtml?id=508096

 

Publications

Investor Activism and Takeovers

Abstract

Recent work documents large positive abnormal returns around the time that a hedge fund announces its activist intentions with a publicly listed firm. We show that these returns are largely explained by the ability of activists to force target firms into a takeover: In a comprehensive sample of 13D filings by portfolio investors between 1993 and 2006, we find that announcement returns and long-term abnormal returns are high for the subset of targets that are acquired ex-post, but not detectably different from zero for firms that remain independent eighteen months after the initial filing. We show that firms that are targeted by activists are more likely to get acquired than those in a control sample. Finally, we show that the portfolios managed by activist investors perform poorly during a period in which market-wide takeover interest declined.

Effort or Timing: The Effect of Lump-Sum Bonuses

Abstract

This article addresses the question of whether lump-sum bonuses motivate salespeople to work harder to attain incremental orders or whether they induce salespeople to play timing games (behaviors that increase incentive payments without providing incremental benefits to the firm) with their order submissions. We find that lump-sum bonuses primarily motivate salespeople to work harder, a result that is consistent with the widespread use of bonuses in practice but that contradicts earlier empirical work in academics.

Relevance and Rigor: Executive Education as a Lever in Shaping Practice and Research

Abstract

As professional schools, business schools aspire to couple research rigor with managerial relevance. There has been, however, a concern that business schools are increasingly uncoupled from practice and that business school research lacks real-world relevance. This relevance-rigor gap affects the quality of our teaching as well as the institutional legitimacy of our business schools. We argue that executive education is an underutilized context that can enhance the quality of faculty research as well as our impact on managerial practice. Using evaluation data from variations of a single executive education program, we find that action-learning programs significantly enhance both individual and organizational outcomes compared to traditional executive education formats. Action-learning programs also enhance our teaching and research efforts. Building on these results and experiences, we suggest that executive education in general, and action learning in particular, are fertile contexts where business schools can bridge the relevance-rigor gap.

Influence and Inefficiency in the Internal Capital Market

Abstract

I model inefficient resource allocations in M-form organizations due to influence activities by division managers that skew capital budgets in their favor. Corporate headquarters receives two types of signals about investment opportunities: private signals that can be distorted by managers, and public signals that are undistorted but noisy. Headquarters faces a tradeoff between the cost of attaining an accurate private signal and the value of the information the signal provides. In contrast to existing models of "socialism" in internal capital markets, I show that investment sensitivity to Q is higher than first-best in firms where division managers hold equity. When managers face high private costs from distorting information, headquarters may commit to investment contracts that ignore private signals and place too much weight on public signals (i.e., Q). This key result is consistent with evidence presented in Scharfstein (1997).