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.

October 26, 2010

As companies turn their attention to emerging countries such as the BRIC nations, does it make sense that they ignore huge multicultural markets in the United States, some of which are larger than those found in entire countries? Writing in the MIT Sloan Management Review, Frank V. Cespedes (HBS) and Michael Wong (HBS MBA 1990, Cobbs Creek Healthcare LLC) discuss effective strategies for selling to ethnic markets in the United States.

Negotiation scholars have traditionally focused on, as one would expect, the negotiation as a basic unit of study. But today a new animal is arising, the "negotiation campaign," where deals can be pieced together over multiple fronts and in several countries. Professor James K. Sebenius writes in the journal Negotiation that this presents scholars with a new set of analytic and practical challenges. Although there is nothing new about negotiating multiple, related deals, "negotiators can find special value in thinking in terms of campaigns, with fronts that must combine to generate enough support for ultimate target agreements."

Combining our themes of multicultural selling and negotiation, a forthcoming book chapter, Building Intercultural Trust at the Negotiating Table, talks about how trust can be built between negotiators who are from different cultures. "We discuss what trust is, why it matters, and why it is so difficult to establish in intercultural negotiations," according to HBS doctoral student Sujin Jang and professor Roy Y.J. Chua.

 

Publications

Selling to Many Countries—Within the U.S.

Abstract

In pursuing growth, many companies have plans to sell to emerging markets like the so-called B-R-I-C nations (Brazil, Russia, India, China), but they overlook significant ethnic markets within the United States. For example, the combined African-American and Hispanic markets in the U.S. are larger than the economies of all but 13 countries, and more than 2 million people in the U.S. speak Chinese. The article discusses why many "multicultural marketing" efforts are both limited and limiting, and how firms can go beyond demographic data to craft effective strategies for selling to ethnic markets within the U.S.

Read the Paper: http://sloanreview.mit.edu/the-magazine/articles/2010/fall/52111/selling-to-many-cultures-within-the-us/

Building Intercultural Trust at the Negotiating Table

Abstract

This chapter examines the challenges of intercultural negotiation with a focus on the critical role of trust. Building trust is crucial for successful negotiations between cultures, yet intercultural negotiations are often characterized by a lack of trust. We discuss what trust is, why it matters, and why it is so difficult to establish in intercultural negotiations. We then offer guidelines for building trust in intercultural negotiations with an emphasis on cultural intelligence-the capacity to adapt effectively across cultures.

From the Outside In: The Negative Spillover Effects of Boundary Spanners' Relations with Members of Other Organizations

Abstract

Contrary to much boundary spanning research, we examined the negative consequences of boundary spanning contact in multi-organizational contexts. Results from a sample of 833 Dutch peacekeepers show that employees' boundary spanning contact with members of other organizations was associated with reports of negative relationships with external parties (e.g., work-specific problems, culture-specific problems). These negative relationships also had a spillover effect such that they mediated the effect of boundary spanning contact on boundary spanners' negative attitudes toward their own jobs and organization (e.g., job attractiveness and confidence in the organization).

Download the Paper: http://people.hbs.edu/lramarajan/Ramarajan%20et%20al%202010.pdf

Developing Negotiation Case Studies

Abstract

While a great deal of excellent advice exists for producing case studies on managerially relevant topics in general, negotiation cases have distinctive aspects that merit explicit treatment. This article offers three types of tailored advice for producing cases on negotiation and related topics (such as mediation and diplomacy) that are primarily intended for classroom discussion: 1) how to decide whether a negotiation-related case lead is worth developing; 2) how to choose the perspective and case type most suited to one's objectives; and 3) in by far the longest part of the discussion, 10 nuts-and-bolts suggestions for structuring and producing an excellent negotiation case study.

Download the Paper: http://www.people.hbs.edu/jsebenius/articles_scans/11_CaseWritingAdvice_v2.51.pdf

Beyond the Deal: Wage a 'Negotiation Campaign'

Abstract

While negotiation scholars primarily take the individual transaction as the "unit of analysis," this article characterizes the (new) concept of a "negotiation campaign" in which a number of individual deals must be put together, often on multiple "fronts," to realize a larger result, typically an ultimate target agreement with sufficient support to make it sustainable. When the unit of analysis shifts from the individual deal to the campaign, a new set of analytic and practical challenges arises, which this article explores via three cases: 1) a cross-border, large-dollar complex sales effort requiring interlocking financial, political, and organizational negotiations among dozens of parties; 2) building support for a major U.S. diplomatic initiative with domestic, international, and U.N. fronts; and 3) launching a new venture requiring internal, capital-raising, licensing, and industrial partnering deals. The need to negotiate multiple, related deals is not new to negotiation theory or practice; traditional concepts such as linkage, sequencing, and coalition building certainly find application in multi-deal situations. Yet beyond such concepts, negotiation analysts can find special value in thinking in terms of campaigns, with multiple interdependent fronts, that must be artfully combined in order to generate enough sufficient support for ultimate target agreements.

Download the paper: http://www.people.hbs.edu/jsebenius/articles_scans/10_NegCampaignsNN.pdf

 

Working Papers

Payout Taxes and the Allocation of Investment

Abstract

When corporate payout is taxed, internal equity (retained earnings) is cheaper than external equity (share issues). If there are no perfect substitutes for equity finance, payout taxes may have an effect on the investment of firms. High taxes will favor investment by firms that can finance internally. Using an international panel with many changes in payout taxes, we show that this prediction holds well. Payout taxes have a large impact on the dynamics of corporate investment and growth. Investment is "locked in" to profitable firms when payout is heavily taxed. Thus, apart from any level effects, payout taxes change the allocation of capital.

Download the paper: http://www.hbs.edu/research/pdf/11-040.pdf

Friends in High Places

Abstract

In this paper we demonstrate that personal connections amongst politicians, and between politicians and firms, have a significant impact on the voting behavior of U.S. politicians. We exploit a unique database linking politicians to other politicians, and linking politicians to firms, and find both channels to be influential. Networks based on alumni connections between politicians, as well as common seat locations on the chamber floor, are consistent predictors of voting behavior. For the former, we estimate sharp measures that control for common characteristics of the network, as well as heterogeneous impacts of a common network characteristic across votes. For common seat locations, we identify a set of plausibly exogenously assigned seats (e.g., freshman senators) and find a strong impact of seat location networks on voting. Further, we show that connections between firms and politicians influence congressional votes on bills that affect these firms. These network effects are stronger for more tightly linked networks and at times when votes are most valuable.

Download the paper: http://www.people.hbs.edu/cmalloy/pdffiles/malco.pdf

Decoding Inside Information

Abstract

Using a simple empirical strategy, we decode the information in insider trades. Exploiting the fact that insiders trade for a variety of reasons, we show that there is predictable, identifiable "routine" insider trading that is not informative for the future of firms. Stripping away these routine trades, which comprise over half the entire universe of insider trades, leaves a set of information-rich "opportunistic" trades that contains all the predictive power in the insider trading universe. A portfolio strategy that focuses solely on opportunistic insider trades yields value-weight abnormal returns of 82 basis points per month, while the abnormal returns associated with routine traders are essentially zero. Further, opportunistic trades predict future news and events at a firm level, while routine trades do not.

Download the paper: http://www.people.hbs.edu/lcohen/pdffiles/pomalco.pdf

Course Materials For: 'Being a Leader and the Effective Exercise of Leadership—An Ontological Model'

Abstract

This course is designed to leave students being leaders and exercising leadership effectively as their natural self-expression—rather than attempting to learn the characteristics, styles, and skills of noteworthy leaders and then trying to remember and apply them where appropriate.

The course is not designed to merely leave the students with knowledge (that is not designed to leave students "knowing" about leaders and leadership and able to cogently discuss the issues surrounding leaders and leadership). Rather, the course is designed to give students actual access to being a leader and the effective exercise of leadership. Our promise to the students is that if they honor their word to fulfill the requests we make of them, they will leave the course being leaders and exercising leadership effectively.

The course material is based on our work over the last seven years in developing a course of the same title at the University of Rochester Simon School of Business. (The course is also taught at the U.S. Air Force Academy, was delivered in June 2010 at Texas A&M University Mays School of Business and at Erasmus Academie Rotterdam in June 2009, and a version is taught at the Erasmus University Law School.) The course is still under development and will be for several more years.

The research project that led to the creation of this course (and the papers and slides on leadership that are part of the course) originated from our interest in laying the foundations for a science of leadership. We agree with Warren Bennis (2002) and Joseph Rost (1993) who conclude respectively: "It is almost a cliché of the leadership literature that a single definition of leadership is lacking." and "The scholars do not know what it is they are studying, and the practitioners do not know what it is they are practicing."

Download the paper: http://ssrn.com/abstract=1263835

Being a Leader and the Effective Exercise of Leadership: An Ontological Model (PDF File of PowerPoint Slides)

Abstract

This presentation is based on our research program over the last seven years in which our objective has been to rigorously distinguish leaders and leadership and to create a technology for providing access to being a leader and exercising leadership effectively (in short, a technology for reliably creating leaders). Our research program involves not only discovering the technology, but also creating a course that would be available to others to use, experiment with, research, improve on, and innovate from. Our efforts thus required an experimental laboratory to discover what will enable us as educators and trainers to efficiently and effectively create leaders.

Dean Mark Zupan of the University of Rochester Simon School of Business provided us with a research/teaching laboratory during the five years (2004-2008) we worked there with students, alumni, executives, and faculty from various academic institutions. This laboratory allowed us to investigate leaders and leadership as phenomena and to create technologies for providing actionable access to leaders and leadership. The course is also taught at the U.S. Air Force Academy, was delivered in 2009 at the Erasmus Academie Rotterdam, and a version is taught at the Erasmus University Law School. In June 2010 the course was taught at Texas A&M University Mays School of Business.

The course is designed to leave participants being leaders and exercising leadership effectively as their natural self-expression, and to contribute to creating a new science of leadership. We have two or three more years of development left to do, and eventually we will produce the product as papers and perhaps a book.

The technology and the course are founded on what we term an ontological model of human nature. The ontological approach is uniquely effective in providing actionable access to being a leader and exercising leadership effectively.

While ontology as a general subject is concerned with the being of anything, here we are concerned with the ontology of human beings (the nature and function of being for human beings). Specifically we are concerned with the ontology of leaders and leadership (the nature and function of being for a leader and the actions of effective leadership). Who one is being when being a leader shapes one's perceptions, emotions, creative imagination, thinking, planning, and consequently one's actions in the exercise of leadership.

Being a leader and the effective exercise of leadership as one's natural self-expression does not come from learning and trying to emulate the characteristics or styles of noteworthy leaders or learning what effective leaders do and trying to emulate them (and most certainly not from merely being in a leadership position or position of authority). If you are not being a leader, and you try to act like a leader, you are likely to fail. That's called being inauthentic (playing a role or pretending to be a leader), which is deadly in any attempt to exercise leadership. An epistemological mastery of a subject leaves you knowing. An ontological mastery of a subject leaves you being.

Gaining access to being a leader and the effective exercise of leadership as one's natural self-expression also requires dealing with those factors present in all human beings that constrain each person's freedom to be—and constrain and shape one's perceptions, emotions, creative imagination, thinking, planning, and actions. When one is not constrained or shaped by these factors—what we term "ontological constraints"—one's way of being and acting results naturally in one's personal best. We work with the students so that they accomplish this for themselves.

Download the paper: http://ssrn.com/abstract=1392406

A 'Value-Free' Approach to Values (PDF File of PowerPoint Slides)

Abstract

We argue here that the three factors we identify as constituting the foundation for being a leader and the effective exercise of leadership can also be seen as "A 'Value-Free' Approach to Values" that proves to be very effective in allowing students to acquire the foundations not only for great leadership, but also for a high quality personal life and an extraordinary organization.

We characterize this approach as "value free" because, 1) integrity as we define it (being whole and complete) is a purely positive proposition, 2) authenticity is also a purely positive proposition (being and acting consistent with who you hold yourself out to be for others and who you hold yourself out to be for yourself), and 3) being committed to something bigger than oneself is also a purely positive proposition (that says nothing about what that commitment should be other than that it be bigger than oneself).

This presentation is based on our leadership research program conducted over the last seven years. That research was designed to discover what it actually takes to create leaders—that is, to leave students at the end of the course being leaders and effectively exercising leadership as their natural self-expression.

Download the paper: http://ssrn.com/abstract=1640302

Making Savers Winners: An Overview of Prize-Linked Savings Products

Abstract

For over three centuries and throughout the globe, people have enthusiastically bought savings products that incorporate lottery elements. In lieu of paying traditional interest to all investors proportional to their balances, these Prize Linked Savings (PLS) accounts distribute periodic sizeable payments to some investors using a lottery-like drawing where an investor's chances of winning are proportional to one's account balances. This paper describes these products, provides examples of their use, argues for their potential popularity in the United States—especially to low and moderate income non-savers—and discusses the laws and regulations in the United States that largely prohibit their issuance.

Download the paper: http://papers.nber.org/papers/w16433

 

Cases & Course Materials

Hang Lung Properties and the Chengdu Decision (A)

John D. Macomber, Michael Shih-Ta Chen, and Keith Chi-Ho Wong
Harvard Business School Case 210-089

A residential real estate developer competes in a heated auction for a prime retail development site in the interior of China during the 2009 boom. Total project cost might be in excess of $1 billion U.S. for over 4,000,000 square feet of building. Hang Lung Properties has enjoyed success in residential building in Hong Kong but has focused on very limited projects in China, notably two retail properties in Shanghai. After a decade in Shanghai the firm decides to enter second-tier Chinese cities including Chengdu, a city of 11 million in interior China. The case covers Hang Lung Properties' due diligence and thought process with respect to anticipated rental income, construction costs, and land costs. The auction includes many other well-capitalized firms and the price escalates. Hang Lung's team must decide whether to participate or withdraw. Students need to use judgment with respect to estimates of key variables including stabilized income, construction cost, and minimum expectations for return on investment in order to prepare their bids.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/210089-PDF-ENG

Hang Lung Properties and the Chengdu Decision (B)

John D. Macomber, Michael Shih-Ta Chen, and Keith Chi-Ho Wong
Harvard Business School Supplement 210-092

Second phase of auction for a prime retail development parcel in Chengdu, China. Competition forces the firm to revisit all of its land purchase criteria. Hang Lung Properties is known for rigorous due diligence, for discipline in buying property, and for good understanding of market cycles. The (B) case reveals the firms assumptions in the Chengdu situation, as compared to what students had to derive on their own in the (A) case. The (B) case also reviews strategic focus with respect to asset classes and geography, as well as best practices for what to look for in cities that will be attractive for superblock mixed-use projects.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/210092-PDF-ENG

Citigroup 2007: Financial Reporting and Regulatory Capital

Edward J. Riedl, Suraj Srinivasan, and Sharon Katz
Harvard Business School Case 111-041

This case introduces 1) financial statements for banks, 2) basic regulatory capital calculations, and 3) actions Citigroup must consider under a scenario of continued losses/fair value declines in 2008 (leading to potential violation of regulatory capital).

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/111041-PDF-ENG

Post-Crisis Compensation at Credit Suisse (A)

Clayton Rose and Aldo Sesia, Jr.
Harvard Business School Case 311-005

On October 20, 2009, Brady Dougan, the CEO of Credit Suisse Group, announced a new compensation plan for the bank. The announcement had followed quickly on the heels of the G-20 meeting the prior month where, in the wake of the financial crisis, the major governments had laid out a set of guidelines for compensation in the financial industry. Credit Suisse Group was the first firm to adopt the G-20 guidelines and did so a year ahead of the suggested timetable. While responsive to the concerns of regulators and politicians, Credit Suisse's program was more than a knee-jerk reaction; the new compensation plan had been the result of a "10-year journey" to reshape the culture of the firm. After a significant investment of senior leadership time to explain the new program to employees, a significant new challenge arose. On December 9, the U.K. government announced it would impose a one-time 50% tax on bankers' bonuses greater than £25,000. Dougan and the executive team had to decide how best to fund this tax. Was it fair or appropriate to have the shareholders shoulder the burden of the tax? Similarly, was it fair to ask the U.K. employees to suffer relative to their peers in other countries?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/311005-PDF-ENG

Post-Crisis Compensation at Credit Suisse (B)

Clayton Rose and Aldo Sesia, Jr.
Harvard Business School Supplement 311-006

The (B) case describes how Credit Suisse management allocated the cost of the 25% U.K. banker's tax among shareholders, U.K. managing directors, and the other employees globally.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/311006-PDF-ENG

Post-Crisis Compensation at Credit Suisse (C)

Clayton Rose and Aldo Sesia, Jr.
Harvard Business School Supplement 311-007

The (C) case describes the results of Credit Suisse's PIP I program, the value of PAF, shareholders' vote on the new compensation plan supported by management, and the impact of the company's approach to the U.K. banker's tax.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/311007-PDF-ENG