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 9

How should companies survive a recession and do well afterward? Empirical research into the activities of 4,700 public companies during three recent recessions makes clear that the healthiest survivors simultaneously deployed both defensive and offensive maneuvers. Writing in the March issue of Harvard Business Review, HBS professors Ranjay Gulati and Nitin Nohria and Kellogg School doctoral student Franz Wohlgezogen advise a multi-pronged strategy to reduce costs selectively and invest wisely in marketing, R&D, and new assets.

The study provides sobering news as well. Seventeen percent of the companies went bankrupt, were acquired, or turned private in the wake of a recession. "Firms that cut costs faster and deeper than rivals don't necessarily flourish," the researchers explain. "Businesses that boldly invest more than their rivals during a recession don't always fare well either. They enjoy only a 26 percent chance of becoming leaders after a downturn. And companies that were growth leaders coming into a recession often can't retain their momentum; about 85 percent are toppled during bad times." Their article, "Roaring Out of Recession," suggests ways to avoid that fate.

Other new work on tap examines, among other topics, the building of the Panama Canal and the varying influence of business groups in India. And a "Marketing Analysis Toolkit: Breakeven Analysis" case note launches this week.

 

Publications

One Report: Integrated Reporting for a Sustainable Strategy

An abstract is unavailable at this time.

Book Abstract: http://www.amazon.com/One-Report-Integrated-Reporting-Sustainable/dp/0470587512/ref=sr_1_1?ie=UTF8&s=books&qid=1266436753&sr=1-1

The Big Ditch: How America Took, Built, Ran, and Ultimately Gave Away the Panama Canal

Abstract

On August 15, 1914, the Panama Canal was officially opened for business, thus changing the face of both world trade and military power and playing a pivotal role in the rise of the United States on the world stage. Today we view the creation of the Panama Canal as a story of U.S. triumphalism; but the true story is a bit murkier. The first study of the Panama Canal to make use of both conventional historical methods and the tools of quantitative analysis, The Big Ditch examines the impact of the Panama Canal on the Republic of Panama, the United States, and the world. Noel Maurer and Carlos Yu deftly chronicle the economic history of the Canal, from the very earliest proposals made by Spain in 1529, through an abortive French attempt in the 19th century, to the construction, opening, and operation of the Canal by the U.S., and finally the turning over of the Canal to Panama, which was promised by the Carter administration in 1977 and made effective December 31, 1999. The true story of the Canal upends the more conventional tale of U.S. triumphalism and its shepherding of one of the largest infrastructure works ever built. First, the Canal produced great economic dividends for the first quarter-century following its opening, despite massive cost overruns and delays. Second, the United States captured most of these economic benefits, partially because of its geographical situation and partially because it could leverage its military might to obtain a better agreement than would have otherwise been reached. Finally, the U.S. agreement to give ownership of the Canal back to Panama in the 1970s was not a gesture of magnanimity, but because the strategic and economic value of ownership had since disappeared. In a surprise to those who argued that it was impossible for a fledgling Latin American nation plagued by corruption to manage the Canal better than its powerful patron to the north, the story of the Canal since its handover has been that the Panamanians have ultimately proved better at running it. Under the distant governance of a large country not particularly vested in the Canal's operation, the Panama Canal was run as a public utility. The Panamanian government, in contrast, has run the Canal as a for-profit corporation, increasing safety and decreasing costs along the way. Maurer and Yu's nuanced analysis of the contribution of the United States to state-building, economic development, and democratization of Central America does more than just advance our understanding of the national and global consequences of the Panama Canal and the imperialist motives and influences of the United States. In an age where everyone is looking for new models to capture the benefits of private enterprise under conditions of state ownership, the tale told by The Big Ditch serves as a vital and object lesson for those who question the ability of governments to run companies effectively.

Bold Retreat: A New Strategy for Old Technologies

An abstract is unavailable at this time.

Download the paper: http://hbr.org/2010/03/bold-retreat/ar/1

Lawsuits and Empire: On the Enforcement of Sovereign Debt in Latin America

Abstract

The re-occurring phenomenon of sovereign default has prompted an enormous theoretical and empirical literature. Most of this research has focused on why countries ever chose to pay their debts (or why private creditors ever expected repayment). The problem originates from the fact that repayment incentives for sovereign debts are minimal since little can be used as collateral and the ability of a court to force a sovereign entity to comply has been extremely limited, especially given the lack of a supranational legal authority capable of enforcing contracts across borders. In this paper we contrast the market reaction to attempts to enforce sovereign debt contracts via U.S. "dollar diplomacy" in Latin America in the pre-World War II period and by legal action in the 1990s and early 2000s. We argue that dollar diplomacy created an effective and credible

Roaring Out of Recession

An abstract is unavailable at this time.

Download the paper: http://hbr.org/2010/03/roaring-out-of-recession/ar/1

Think Outside the Building

An abstract is unavailable at this time.

Download the paper: http://hbr.org/2010/03/column-think-outside-the-building/ar/1

Changing Landscapes: The Construction of Meaning and Value in a New Market Category—Modern Indian Art

Abstract

Stable category meanings act as institutions that facilitate market exchange by providing bases for comparison and valuation. Yet little is known about meaning construction in new categories or how meaning translates into valuation criteria. We address this gap in a descriptive study of these processes in an emerging category-modern Indian art. Discourse analysis revealed how market actors shaped the construction of meaning in the new category by reinterpreting historical constructs in ways that enhanced commensurability and enabled aesthetic comparisons and valuation. Analysis of auction transactions revealed greater inter-subjective agreement about valuation over time, as the new category institutionalized.

Measuring the Perpetrators and Funders of Typosquatting

Abstract

We describe a method for identifying "typosquatting," the intentional registration of misspellings of popular web site addresses. We estimate that at least 938,000 typosquatting domains target the top 3,264 .com sites, and we crawl more than 285,000 of these domains to analyze their revenue sources. We find that 80% are supported by pay-per-click ads, often advertising the correctly spelled domain and its competitors. Another 20% include static redirection to other sites. We present an automated technique that uncovered 75 otherwise legitimate web sites, which benefited from direct links from thousands of misspellings of competing web sites. Using regression analysis, we find that web sites in categories with higher pay-per-click ad prices face more typosquatting registrations, indicating that ad platforms such as Google AdWords exacerbate typosquatting. However, our investigations also confirm the feasibility of significantly reducing typosquatting. We find that typosquatting is highly concentrated: of typo domains showing Google ads, 63% use one of five advertising IDs, and some large name servers host typosquatting domains as much as four times as often as the web as a whole.

Download the paper: http://www.benedelman.org/typosquatting/typosquatting.pdf

 

Working Papers

Location Strategies for Agglomeration Economies

Abstract

Geographically concentrated industry activity creates pools of skilled labor and specialized suppliers and increases opportunities for knowledge spillovers. The strategic value of these agglomeration economies may vary by firm, depending upon the relative value of each economy, and upon firm and agglomeration economy traits. To better determine when a firm will be attracted to agglomeration economies, we develop a three-layer framework. The first layer assesses the relative importance of skilled labor, suppliers, and knowledge spillovers. The second layer considers whether firms can benefit from geographic concentration without co-locating. The final layer examines why some firms are more inclined to co-locate than others based upon firm and agglomeration economy traits. We test our framework on the U.S. location choices of new manufacturing entrants between 1985 and 1994 and find that firms are far more attracted to skilled labor and specialized suppliers than they are to potential knowledge spillovers, even in R&D intensive industries. We also find that leading firms will be more attracted to pools of labor, suppliers, and potential knowledge spillovers when their own contributions are less fungible, and cannot be easily leveraged for strategic advantage by proximate competitors.

Download the paper: http://www.hbs.edu/research/pdf/10-071.pdf

Matching Firms, Managers, and Incentives

Abstract

We provide evidence on the match between firms, managers, and incentives using a new survey that contains information on managers' risk preferences and human capital, on their compensation schemes, and on the firms they work for. The data is consistent with the equilibrium correlations predicted by a model where firms with different ownership structure and managers with different risk aversion and talent match endogenously through incentive contracts. The model predicts and the data support that, compared to widely held firms, family firms use contracts that are less sensitive to performance; these contracts attract less talented and more risk-averse managers, and these managers work less hard, earn less, and display lower job satisfaction.

Download the paper: http://www.hbs.edu/research/pdf/10-073.pdf

Equity-Debtholder Conflicts and Capital Structure

Abstract

We use an important legal event as a natural experiment to examine equity-debt conflicts in the vicinity of financial distress. A 1991 Delaware bankruptcy ruling changed the nature of corporate directors' fiduciary duties in that state. This change limited incentives to take actions favoring equity over debt. We show that, as predicted, this increased the likelihood of equity issues, increased investment, and reduced risk taking. The changes are isolated to indebted firms (where the legal change applied). These reductions in agency costs were followed by an increase in average leverage and a reduction in interest costs. Finally, we can estimate the welfare implications of agency costs, because firm values increased when the rules were introduced. We conclude that equity-bondholder conflicts are economically important, determine capital structure choices, and affect welfare.

Download the paper: http://www.hbs.edu/research/pdf/10-070.pdf

A Reexamination of Tunneling and Business Groups: New Data and New Methods

Abstract

The last decade of corporate governance research has been focused in large part on identifying what leads to superior or deficient corporate governance in emerging economies, and we think the conventional wisdom about the economically important topics of tunneling and business groups will need to be significantly questioned and reformulated in light of new findings, data, and methodology presented here. We propose the idea that firms' corporate governance and firms' strategic business activities within an industry are interlinked, and that only by conducting a simultaneous economic analysis of business strategy and corporate governance can scholars fully discern the quality of a firm's governance. We advance this idea by taking a fresh look at one of the most rigorous extant methodologies for detecting "tunneling," or efforts by firms' controlling owner-managers to take money for themselves at the expense of minority shareholders. We show that efforts to discern which firms have superior or deficient corporate governance in the important emerging economy of India turn critically on whether one does a simultaneous economic analysis of business strategy and corporate governance. We find in contrast to prior views that Indian business groups are not, on average, engaging in tunneling but are, on average, exhibiting good corporate governance, especially in light of the markedly different business strategies they typically undertake. Moreover, unlike many past conceptions of business groups from financial economics, sociology, and strategy, we find evidence for a knowledge-based "recombinative capabilities" view of business groups-that such groups have done the most to invest in R&D and other skills necessary to combine inputs in ways that lead to greater added value. Moreover, our finding that Indian business groups have grown larger and more diversified since liberalization and since broad-based corporate governance reforms were implemented goes expressly against the prediction of prior schools of thought about business groups.

Download the paper: http://www.hbs.edu/research/pdf/10-072.pdf

 

Cases & Course Materials

Introduction to Business, Government, and the International Economy (BGIE)

Catherine S.M. Duggan, Aldo Musacchio, and Matthew C. Weinzierl
Harvard Business School Course Overview 710-045

An abstract is unavailable at this time.

Purchase this course overview:
http://cb.hbsp.harvard.edu/cb/product/710045-PDF-ENG

Marketing Analysis Toolkit: Breakeven Analysis

Thomas Steenburgh and Jill Avery
Harvard Business School Note 510-080

Marketing managers are often called upon to make recommendations for or against programs that cost money to implement. Before expenditures are made, managers want to be sure that they will be getting a return on their investment. One way of assessing this is by calculating the breakeven point. In this note, we introduce the concept of breakeven analysis and show how it is used to guide marketing decision making. This analysis helps students assess the feasibility of proposed fixed and variable marketing expenditures, the feasibility of permanent pricing changes, and the feasibility of a new product introduction. The note gives students a foundation for analyzing marketing cases, as well as providing an analytical structure and process for completing a marketing plan. The note is accompanied by a free Excel worksheet that contains sample problems, pre-built Excel models to calculate breakeven, and charts and graphs that help visualize the results.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/510080-PDF-ENG

Marketing Analysis Toolkit: Breakeven Analysis

Thomas Steenburgh and Jill Avery
Harvard Business School Note 510-080

Marketing managers are often called upon to make recommendations for or against programs that cost money to implement. Before expenditures are made, managers want to be sure that they will be getting a return on their investment. One way of assessing this is by calculating the breakeven point. In this note, we introduce the concept of breakeven analysis and show how it is used to guide marketing decision making. This analysis helps students assess the feasibility of proposed fixed and variable marketing expenditures, the feasibility of permanent pricing changes, and the feasibility of a new product introduction. The note gives students a foundation for analyzing marketing cases, as well as providing an analytical structure and process for completing a marketing plan. The note is accompanied by a free Excel worksheet that contains sample problems, pre-built Excel models to calculate breakeven, and charts and graphs that help visualize the results.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/510080-PDF-ENG

Marketing Analysis Toolkit: Market Size and Market Share Analysis

Thomas Steenburgh and Jill Avery
Harvard Business School Note 510-081

Marketers frequently need to estimate the size of their markets—both for existing products so that sales forecasts can be developed and for new products so that market opportunities can be assessed. This toolkit enables students to size a market and generate a sales forecast using a market build-up methodology. Students learn to measure market demand and company demand and calculate market and product penetration rates and market share. The note gives students a foundation for analyzing marketing cases, as well as providing an analytical structure and process for completing a marketing plan. The note is accompanied by a free Excel worksheet that contains sample problems, pre-built Excel models to calculate market size, market penetration, and market share, and charts and graphs that help visualize the results.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/510081-PDF-ENG

Marketing Analysis Toolkit: Situation Analysis

Thomas Steenburgh and Jill Avery
Harvard Business School Note 510-079

Before managers can begin to formulate marketing strategies for their businesses, they must have a strong understanding of the internal and external marketing environments in which they are operating. In this note, we present three methods for collecting and analyzing information about the internal and external marketing environments firms face: Five C's Analysis, Porter's Five Forces Industry Analysis, and SWOT Analysis. These analyses help students understand the analytical processes by which managers understand themselves, their consumers, and the marketplaces in which they compete. The note gives students a foundation for analyzing marketing cases, as well as providing an analytical structure and process for completing the situation analysis section of a marketing plan.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/510079-PDF-ENG

The Dabbawala System: On-Time Delivery, Every Time

Stefan Thomke and Mona Srivastava
Harvard Business School Case 610-059

Describes the Mumbai-based Dabbawala organization, which achieves very high service performance (6 Sigma equivalent or better) with a low-cost and very simple operating system. The case explores all aspects of their system (mission, information management, material flows, human resource system, processes, etc.) and the challenges that the Dabbawala organization faces in a rapidly changing environment. An outside consultant proposes the introduction of new technologies and management systems, while the leading logistics companies (e.g., FedEx) come to Mumbai to learn about the Dabbawala system.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/610059-PDF-ENG