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.

Jan. 12

Striking a deal with someone in another cultural context can be, if not easy, then at least easier. "Assess, Don't Assume," a two-part working paper series by HBS professor James K. Sebenius, explains how to do your homework as a first step, and to adjust your strategy and tactics as you negotiate across borders. Throughout the time frame of a complex negotiation it is vital to manage expectations, including those of your own headquarters.

Part I [PDF] focuses mainly on issues of etiquette for managers to lay the groundwork while remaining flexible to all opportunities. Part II [PDF] describes how to map the formal and informal processes you anticipate and encounter.

"Whether the other side's 'yes' or 'no' ultimately results from an authoritative figure, a consensus, a sequenced set of approvals, or a distinctive coalition, your strategy and tactics should be designed to exert maximal influence on that process," concludes Sebenius.


Working Papers

A Reference Point Theory of Mergers and Acquisitions


The use of judgmental anchors or reference points in valuing corporations affects several basic aspects of merger and acquisition activity including offer prices, deal success, market reaction, and merger waves. Offer prices are biased towards the 52-week high, a highly salient but largely irrelevant past price, and the modal offer price is exactly that reference price. An offer's probability of acceptance discontinuously increases when the offer exceeds the 52-week high; conversely, bidder shareholders react increasingly negatively as the offer price is pulled upward toward that price. Merger waves occur when high recent returns on the stock market and on likely targets make it easier for bidders to offer the 52-week high.

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Labor Regulations and European Private Equity


European nations substitute between employment protection regulations and labor market expenditures (e.g., unemployment insurance benefits) for providing worker insurance. Employment regulations more directly tax firms making frequent labor adjustments than other labor insurance mechanisms. Venture capital and private equity investors are especially sensitive to these labor adjustment costs. Nations favoring labor expenditures as the mechanism for providing worker insurance developed stronger private equity markets in high volatility sectors over 1990-2004. These patterns are further evident in U.S. investments into Europe. In this context, policy mechanisms are more important than the overall insurance level provided.

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An Investigation of Earnings Management through Marketing Actions (revised)


Prior research hypothesizes managers use "real actions," including the reduction of discretionary expenditures, to manage earnings to meet or beat key benchmarks. This paper examines this hypothesis by testing how different types of marketing expenditures are used to boost earnings for a durable commodity consumer product, which can be easily stockpiled by end-consumers, as well as who, within the firm, is responsible for these actions.

Combining supermarket scanner data with firm-level financial data, we find evidence that differs from prior literature. Instead of reducing expenditures to boost earnings, soup manufacturers roughly double the frequency and adversely change the mix of marketing promotions (price discounts, feature advertisements, and aisle displays) at the fiscal quarter end when they have greater incentive to boost earnings.

Our results confirm managers' stated willingness to sacrifice long-term value in order to smooth earnings (Graham, Harvey, and Rajgopal, 2005) and their stated preference to use real actions to boost earnings to meet different types of earnings benchmarks. We estimate that marketing actions can be used to boost quarterly net income by up to 5% depending on the depth and duration of promotion. However, there is a price to pay, with the cost in the following period being approximately 7.5% of quarterly net income.

Finally, a unique aspect of the research setting allows tests of who is responsible for the earnings management. While firms appear unable to increase the frequency of aisle display promotions in the short run, they can reallocate these promotions within their portfolio of brands. Results show firms shifting display promotions away from smaller revenue brands toward larger ones following periods of poor financial performance. This indicates the behavior is determined by parties above brand managers in the firm.

These findings are consistent with firms engaging in real earnings management and suggest the effects on subsequent reporting periods and competitor behavior are greater than previously documented.

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Negotiating the Path of Abraham


In the face of daunting barriers, the Abraham Path Initiative envisions uncovering and revitalizing a route of cultural tourism that follows the path of Abraham and his family some 4,000 years ago across the Middle East. It begins in the ancient ruins of Harran, in modern-day Turkey, where Abraham first heard the call to "go forth." It passes through some of the world's most revered cultural, historical, and holy sites, ending in the city of Hebron/Al-Khalil at the tomb of Abraham. With Abraham as a venerated patriarchal figure for Islam, Judaism, and Christianity—monotheistic religions whose adherents have so often clashed—the potential unifying power of this conception has attracted a remarkable range of supporters from around the world. From a notion crystallized at Harvard in 2004, this idea has been carefully negotiated into a concrete reality with supporting country organizations in Syria, Turkey, Jordan, Palestine, and Israel. If completed, it would eventually extend to encompass Abraham's travels to and from Egypt, Iraq, and Saudi Arabia. With the endorsement of the U.N.'s Alliance of Civilizations, over 300 kilometers of the Path have now been opened to a fast-growing number of travelers ranging from student study groups to Syrian President al-Assad walking a stretch of the path with former U.S. President Jimmy Carter. As it takes fuller shape, the Path variously serves as a catalyst for sustainable tourism and economic development, a platform for the energy and idealism of young people, a beacon for pilgrims and peace-builders, as well as a focus for seemingly endless media inquiries from reporters, documentary filmmakers, and writers keen on telling its story to audiences worldwide. This paper provides background on the Path in terms of strategic negotiation, social entrepreneurship, sustainable tourism, and economic development.

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Endowments, Fiscal Federalism, and the Cost of Capital for States: Evidence from Brazil, 1891-1930 (revised)


There is a large amount of literature that aims to explain what determines country risk (defined as the difference between the yield of a sovereign's bonds and the risk-free rate). In this paper, we contribute to the discussion by arguing that an important explanatory factor is the impact that commodities have on the capacity to pay. We use a newly created database with state-level fiscal and risk premium data for Brazil states between 1891 and 1930 to show that Brazilian states with natural endowments that were allowed to export commodities high in demand (e.g., rubber and coffee) ended up having higher revenues per capita and, thus, lower cost of capital. We also explain that the variation in revenues per capita was both a product of the variation in natural endowments (i.e., the fact that states cannot produce any commodity they want) and a commodity boom that had asymmetric effects among states. These two effects generated variation in revenues per capita at the state level thanks to the extreme form of fiscal decentralization that the Brazilian government adopted in the Constitution of 1891, which gave states the sole right to tax exports. We end by running instrumental variable estimates using indices of export prices for each state to instrument for revenues per capita. Our instrumental variable estimates confirm our results that states with commodities that had higher price increases had lower risk premia.

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Assess, Don't Assume, Part I: Etiquette and National Culture in Negotiation


When facing a cross-border negotiation, the standard preparatory assessments—of the parties, their interests, their no-deal options, opportunities for and barriers to creating and claiming value, the most promising sequence and process design, etc.— should be informed and modified by two classes of potentially relevant cross-border factors, the general and the negotiation-specific. Drawing on considerable literature in cross-border and cross-cultural negotiation, this paper develops the first two levels of a four-level prescriptive framework for effectively carrying out such assessments:

  1. Common expectations for surface behavior: etiquette, protocol, and deportment. A surface-level assessment informs one about local expectations concerning greetings, business cards, gift giving, dress, punctuality, body language, table manners, and so forth.
  2. Deeper cultural characteristics and their implications for the negotiation process itself. Below the surface are characteristics such as whether a culture is focused on the individual or the collective, the nature and importance of relationships, how personal space and the role of time are viewed, the extent to which authority and hierarchy are accepted, how ambiguity and risk are regarded, and so on. Extending this assessment to expectations that are more specific to the negotiation process itself yields several questions: Is there a view that negotiation is a collaborative process aimed at mutual advantage or a competitive battle? Should one focus on specific issues early on or is there a lengthy process of relationship building first? Is the process formal or informal? Is communication direct or indirect? Are agreements constructed from general principles "down" or from specific provisions "up"? And so on.
  3. The bulk of this essay develops these two points but with some strong caveats against stereotyping, overemphasizing national culture, falling prey to potent psychological biases in cross-cultural perception, as well as potentially adapting "past" one's counterpart. [A close companion paper-"Assess, Don't Assume, Part II: Decision Making, Governance, and Political Economy in Negotiation"—elaborates the importance to effective negotiating strategy and tactics of incorporating two less well-studied factors beyond etiquette and deeper cultural characteristics: 3) systematic cross-border differences in decision making, governance, and 4) the broader economic and political context for negotiation as well as salient "comparable" deals.]

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Assess, Don't Assume, Part II: Negotiating Implications of Cross-Border Differences in Decision Making, Governance, and Political Economy


When facing a negotiation that crosses national borders and/or cultures, the standard preparatory assessments—of the parties, their interests, their no-deal options, opportunities for and barriers to creating and claiming value, the most promising sequence and process design, etc.—should be informed and modified by potentially relevant factors. Drawing on considerable literature in cross-border and cross-cultural negotiation, a two-paper series develops a four-level prescriptive framework for effectively carrying out such assessments. The first paper in this series ("Etiquette and National Culture in Negotiation") described:

  1. common expectations for surface behavior
  2. some implications of deeper cultural characteristics for the negotiation process itself, as well as cross-border caveats such as stereotyping and overemphasizing national culture to the exclusion of other factors. The current paper carries this analysis further by systematically analyzing a third and fourth class of factors that often prove critical in cross-border dealmaking
  3. The decision-making and governance processes that are the targets of influence efforts. While negotiations take place with individuals, those individuals are typically enmeshed in organizational processes and cultures. Thus, a key assessment focuses on the organization's decision-making and governance processes. Several questions guide this analysis: Who has what decision rights? Is it a one-person authoritarian process? A simple consensus? A multi-stage consensus process? A key subgroup? How does the formal decision-making and governance process differ from the informal one?
  4. The broader economic and political context for negotiation as well as salient "comparable" deals. Several questions guide this analysis: Is there a formal or informal government policy toward the kind of arrangements under negotiation such as the requirement that the majority of a joint venture be owned by a local partner? Are high-tech deals particularly sought after by the state? What recent deals by others, successful or not, will be salient in the minds of your local hosts and authorities when they contemplate yours? Does the political ethos favor state control or privatization? Does a wrenching political transition foster managerial uncertainty and decision paralysis? And so on.

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The Promise and Peril of Russia's Resurgent State


The article discusses the effect of the global financial crisis of 2008-2009 on the outlook for Russia's economic growth. The discussion focuses on the status of capitalism in Russia and the government's central role in business. A brief history of Russia's economic policy and business conditions since 2000 is given. The growth of Russia's economy and the fiscal surpluses resulting from high oil prices are mentioned. The experiences of Royal Dutch Shell, British Petroleum Co. PLC, and Enel SpA, which made business investments in Russia, are also discussed.

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Do Private Equity-owned Firms Have Better Management Practices?

An abstract is unavailable at this time.

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Five Ways to Bungle a Job Change


The article focuses on career development and job change. The challenges, transaction costs, and risks associated with job moves are discussed. The authors' research with executives is noted. The mistakes in career development that job hunters make are not doing enough research on the job market, leaving a job for one that offers more money, job-hopping instead of career planning, overestimating one's value to an organization, and thinking in a short-term perspective. Questions that should be asked throughout the process of a job change are mentioned. The effect of psychological, social, and time pressures on a job move is mentioned.

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Managing Alliances with the Balanced Scorecard


The article addresses failures in strategic alliances and illustrates, via a detailed description of the successful strategic alliance between Solvay Pharmaceuticals Inc. and Quintiles company how the creation of a strategy map and Balanced Scorecard helps align the separate interests of alliance partners into a coherent joint strategy. These tools are then used to communicate the common vision to all alliance employees and establish a governance process that keeps everyone focused on achieving the alliance's strategic objectives.

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How to Bounce Back from Adversity


The article focuses on how companies can be managed to overcome adversity with resilience. The characteristics of resilient managers who provide leadership for their teams and can build resilience in their employees are discussed. The manager's ability to shift from cause-oriented to response-oriented thinking depends on the four perspectives or lenses controlling the factors causing the crisis, impact of management's actions, breadth of the crisis, and duration of the situation. A resilience regimen of questions that managers can use to reframe negative events and understand their thought processes is explained.

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Crafting Integrated Multichannel Retailing Strategies


Multichannel retailing is the set of activities involved in selling merchandise or services to consumers through more than one channel. Multichannel retailers dominate today's retail landscape. While there are many benefits of operating multiple channels, these retailers also face many challenges. In this article, we discuss the key issues concerning multichannel retailing, including the motivations and constraints of going multichannel, the challenges of crafting multichannel retailing strategies and opportunities for creating synergies across channels, key retail mix decisions facing multichannel retailers, and the dynamics of multichannel retailing. We synthesize current knowledge drawn from the academic literature and industry practice and discuss potential directions for future research.

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Cases & Course Materials

BlackRock Money Market Management in September 2008 (A)

Kenneth A. Froot and David Lane
Harvard Business School Case 209-101

This case highlights the issues around money market mutual funds in the financial crisis of 2008.

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eReading: Amazon's Kindle

Bharat N. Anand, Peter W. Olson, and Mary Tripsas
Harvard Business School Case 709-486

In November 2007, Amazon introduced the Kindle, the first electronic reader with wireless functionality. The case describes the launch of the Kindle and provides information on representative players in the industry (or broader ecosystem) who are likely to be affected and react, including Penguin (the leading educational publisher), Barnes & Noble (the largest bricks-&-mortar retailer), Apple and Sony (as manufacturers of competing devices), Google (as a major provider of free e-content), and Adobe (as a competitor in creating an e-book standard).

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Personal Rapid Transport at Vectus, Ltd

Benjamin Edelman
Harvard Business School Case 910-010

Personal Rapid Transport (PRT) vehicles—often called "driverless taxis"—sought to combine the best characteristics of cars, taxis, and trains, while adding features unavailable in any existing transportation system. Like cars and taxis, PRT vehicles carried small groups—often just a single passenger—with no need to wait for a shared vehicle to arrive or for others to board. Yet PRT followed train systems in using an exclusive right of way that avoided delays from other traffic. Where would such systems be most useful? Could system designers successfully compete with well-established networks of trains, buses, cars, and roads?

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Philips versus Matsushita: The Competitive Battle Continues

Christopher A. Bartlett
Harvard Business School Case 910-410

Describes the development of the global strategies and organizations of two major competitors in the consumer electronics industry. Over four decades, both companies adapt their strategic intent and organizational capability to match and counter the competitive advantage of the other. The case shows how each is faced to restructure as its competitive advantage erodes.

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Playing with Fire at Sittercity (A)

Noam Wasserman and Rachel Gordon
Harvard Business School Case 809-009

In August 2006, Genevieve Thiers, founder and CEO of, looked over at Dan Ratner, Sittercity's vice president and her boyfriend of five years. It had taken her six long years to build Sittercity into the nation's leading babysitting Web service. Thiers had begun Sittercity in 2001 in Boston as a way to connect babysitters and parents online, at a time when no one else had thought to manage care-giving connections via the Web. She had started the company right out of college while working full-time, but by 2006, Sittercity had sitters available across the country, was larger than all of its competitors combined, and Thiers still owned two-thirds of the venture. The company now had plans to add pet, elder-care, house, and tutoring services in 2007, and Thiers wondered what other challenges she and Ratner would face as she continued to grow her venture.

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Red Tomato: Keeping It Local

Jose Alvarez, Mary Shelman, and Laura Winig
Harvard Business School Case 510-023

This case describes the operating model and history of Red Tomato, a non-profit organization dedicated to branding and logistical support for locally grown produce farmers in the northeast U.S. The case highlights the challenges involved in making locally grown produce available to large consumer markets.

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Warner Bros. Entertainment

Gary P. Pisano and Alison Berkley Wagonfeld
Harvard Business School Case 610-036

Examines the process used by a major motion picture studio to develop and select movie projects. Warner Bros.' strategy is to focus its efforts on a small number of major "event" films (i.e., films with the potential to generate gross box office receipts of $300 million or more). This strategy—which has worked for the past two years—entails risks. The studio is now asking how it can better manage these risks and, specifically, how it can improve its odds of success.

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