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.

Dec. 7

Why do consumers choose vacations that are bound to make them uncomfortable? Consumer motivation comes under the microscope of researchers Anat Keinan and Ran Kivetz in the forthcoming article "Productivity Orientation and the Consumption of Collectable Experiences," scheduled for publication in the Journal of Consumer Research. "Consumers sometimes choose to stay at freezing ice hotels and eat at restaurants serving peculiar foods, such as bacon ice cream," according to the researchers. Why? Consumers are "collecting" experiences that lead them to feel productive even when they are engaged in leisure activities. Productive vacations? How exhausting.

The best-selling drug Plavix, used to prevent strokes and heart attacks in at-risk patients, is under attack from competitors, regulators, and an expiring patent. The new HBS case "Plavix: Drugs in the Age of Personalized Medicine" takes readers behind the scenes to ask how the current manufacturers of the drug should handle these threats and how competitors could take advantage of them. It was written by Richard G. Hamermesh, Mara G. Aspinall, and Rachel Gordon.

In another case, "The Cage-Free Egg Movement," authors Michael W. Toffel and Stephanie van Sice encourage students to consider various alternatives when companies such as egg producers are confronted by social movements focusing on supply chains.

 

Publications

Seven Strategy Questions: A Simple Approach for Better Execution

Abstract

To stay ahead of the pack, you must translate your organization's competitive strategy into day-to-day actions that will enable your company to win in the marketplace. This means channeling resources into the right efforts, striking a balance between innovation and control, and getting everyone to pull in the same direction. How do you accomplish all this? Continually ask the right questions, advises Harvard Business School professor Robert Simons. By posing these provocative questions, you identify critical gaps in your strategy execution processes, focus on the most important choices you must make, and understand what's at stake in each one. In this concise guide, Simons presents the seven key questions you and your team must regularly explore together: (1) Who is your primary customer? Have you organized your company to deliver maximum value to that customer? (2) How do your core values prioritize shareholders, employees, and customers? Is everyone in your company committed to those values? (3) What critical performance variables are you tracking? How are you creating accountability for performance on those variables? (4) What strategic boundaries have you set? Does everyone know what actions are off-limits? (5) How are you generating creative tension? Is that tension catalyzing innovation across units? (6) How committed should your employees be to helping each other? Are they sharing responsibility for your company's success? (7) What strategic uncertainties keep you awake at night? How are you riveting everyone's attention on those uncertainties? These questions force you to reexamine the unspoken assumptions underlying your strategy and analyze how it's implemented through your business processes and structures. Drawing on decades of research into performance management systems and organization design, Seven Strategy Questions is a no-nonsense, must-read resource for all leaders in your organization.

Publisher's Link: http://hbr.org/product/seven-strategy-questions-a-simple-approach-for-bet/an/14832-HBK-ENG

Competing against Online Sharing

Abstract

This paper aims to explore online sharing of copyrighted content over peer-to-peer (p2p) file sharing networks and its impact on the music industry and to assess the viable business models for the industry in the future.

Competitiveness: Business Model Reconfiguration for Innovation and Internationalization

Abstract

The purpose of this paper is to reflect on competitiveness by using the business model concept and to understand the need to adapt business models to changes in the environment.

Read the paper: http://www.emeraldinsight.com/journals.htm?articleid=1876547&show=html

Unleashing the Power of Marketing

Abstract

The article examines marketing management at General Electric Co. (GE). The transformation of the company's marketing department into an integral part of product development, product management, and strategic planning after years of relative neglect is considered. The role of Chief Executive Officer Jeff Immelt in initiating and overseeing that change is discussed. The creation of a new marketing strategy by the marketing department, one focused on the role of customer relations in product development, is considered. The creation of a set of basic principles and operating procedures for GE's marketing unit is discussed.

Read the paper: http://hbr.org/2010/10/unleashing-the-power-of-marketing/ar/1

Institutional Pressures and Organizational Characteristics: Implications for Environmental Strategy

Abstract

A broad literature has emerged over the past decades demonstrating that firms' environmental strategies and practices are influenced by stakeholders and institutional pressures. Such findings are consistent with institutional sociology, which emphasizes the importance of regulatory, normative, and cognitive factors in shaping firms' decisions to adopt specific organizational practices, above and beyond their technical efficiency. Similarly, institutional theory emphasizes legitimation processes and the tendency for institutionalized organizational structures and procedures to be taken for granted, regardless of their efficiency implications. However, the institutional perspective does not address the fundamental issue of business strategy necessary to explain the persistence of substantially different strategies among firms that are subjected to comparable levels of institutional pressures. In this chapter, we present current research arguing that such firms adopt heterogeneous sets of environmental management practices despite facing common institutional pressures because organizational characteristics lead managers to interpret these pressures differently.

Drivers of Corporate Sustainability and Implications for Capital Markets: An International Perspective

An abstract is unavailable at this time.

Read the paper: http://www.slideshare.net/Energy909/the-landscape-of-integrated-reporting

Productivity Orientation and the Consumption of Collectable Experiences

Abstract

This research examines why consumers desire unusual and novel consumption experiences and voluntarily choose leisure activities, vacations, and celebrations that are predicted to be less pleasurable. For example, consumers sometimes choose to stay at freezing ice hotels and eat at restaurants serving peculiar foods, such as bacon ice cream. We propose that such choices are driven by consumers' continual striving to use time productively, make progress, and reach accomplishments (i.e., a productivity orientation). We argue that choices of collectable (unusual, novel, extreme) experiences lead consumers to feel productive even when they are engaging in leisure activities, as they "check off" items on an "experiential check list" and build their "experiential CV." A series of laboratory and field studies shows that the consumption of collectable experiences is driven and intensified by a (chronic or situational) productivity orientation.

Consequences and Institutional Determinants of Unregulated Corporate Financial Statements: Evidence from Embedded Value Reporting

Abstract

I analyze Embedded Value (EV) reporting by firms with life insurance operations to assess the impact of unregulated financial reporting on transparency and to examine the institutional characteristics that promote unregulated reporting. Under EV accounting the present value of future cash flows from in-force contracts is included in shareholders' equity, and profit is calculated as the change in equity between two periods. In contrast to Generally Accepted Accounting Principles (GAAP), this approach produces higher shareholder's equity and recognizes income at contract inception. I find firms that adopt EV reporting exhibit a decline in information asymmetry, with the decline increasing as EV reporting evolves to address methodological deficiencies and to permit more comparability across firms. The decrease in information asymmetry is contingent on providing an audit certification, and larger for firms that commit to providing EV reports. Moreover, I document that EV reporting is more widespread in countries with more hostile takeovers, managers that do not avoid volatile income measures, regulators that are less likely to intervene in the product market, and analysts that believe EV disclosure to increase the value of their information intermediation function.

The Effect of Product Variety and Inventory Levels on Retail Sales: A Longitudinal Study

Abstract

We examine the effects of product variety and inventory levels on store sales. Using four years of data from stores of a large retailer, we show that increases in product variety and inventory levels are both associated with higher sales. We also show that increasing product variety and inventory levels has an indirect negative effect on store sales through their impact on phantom products—products that are physically present at the store, but only in storage areas where customers cannot find or purchase them. Our study highlights a consequence of increased product variety and inventory levels that has previously been overlooked in studies of retail product variety and inventory management. It also quantifies the impact of phantom products on store sales. In addition, our study provides empirical evidence to support earlier claims that higher product variety and inventory levels lead to an increase in defect rate. We discuss the implications of our findings for retail inventory and assortment planning and for the design of retail stores.

 

Working Papers

Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge

Abstract

We measure the value of shareholder proxy access by using a recent development in the ability of shareholders to nominate candidates for board seats. We use the SEC's October 4, 2010 announcement that it would significantly delay implementation of its August 2010 proxy access rule as a natural experiment. Because firms with substantial institutional ownership would have been most affected by the SEC's now-delayed changes, we use the share and composition of institutional investors to sort firms into those more and less affected by the October 4 news. Firms that would have been most affected by proxy access, as measured by institutional ownership, lost value on that day. The value drop was 55 basis points for a 10 percentage point change in activist institution ownership. These results suggest that financial markets placed a positive value on shareholder access, as implemented in the SEC's August 2010 rule.

Download the paper: http://www.hbs.edu/research/pdf/11-052.pdf

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 therefore 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

Financial Guarantors and the 2007-2009 Credit Crisis

Abstract

More than half of the municipal bonds issued between 1995 and 2009 were sold with bond insurance. During the credit crisis the perceived credit quality of the financial guarantors fell, and yields on insured bonds exceeded yields on equivalent uninsured issues. It does not appear that either property and casualty insurers or open-end municipal mutual funds were dumping insured bonds; analysis of holdings data indicates that their propensity to sell bonds was unusually low for the issues insured by troubled insurers. At least on a bond-by-bond basis, the yield inversion phenomenon is also not explained by the rapid liquidation of Tender Option Bond (TOB) programs, which disproportionately held insured issues. Finally, during the recent crisis the insured bonds have become significantly less liquid than uninsured municipal debt.

Download the paper: http://www.hbs.edu/research/pdf/11-051.pdf

The Learning Effects of Monitoring

Abstract

This paper investigates the relationship between monitoring, decision making, and learning among lower-level employees. We exploit a field-research setting in which business units vary in the "tightness" with which they monitor employee decisions. We find that tighter monitoring gives rise to implicit incentives in the form of sharp increases in employee termination linked to "excessive" use of decision rights. Consistent with these implicit incentives, we find that employees in tightly monitored business units are less likely than their loosely monitored counterparts to (1) use decision rights and (2) adjust for local information, including historical performance data, in their decisions. These decision-making patterns are associated with large and systematic differences in learning rates across business units. Learning is concentrated in business units with "loose monitoring" and entirely absent in those with "tight monitoring." The results are consistent with an experimentation hypothesis in which tight monitoring of decisions leads to more control but less learning.

Download the paper: http://www.hbs.edu/research/pdf/11-053.pdf

 

Cases & Course Materials

Chile's Copper Surplus: The Road Not Taken (A)

Laura Alfaro, Dante Roscini, and Renee Kim
Harvard Business School Case 710-019

In 2008, Andres Velasco, Chile's Finance Minister, was under mounting criticisms over his fiscal policy. As the world's largest copper producer, Chile was benefiting from the rise in copper prices, which had more than tripled since 2003. Copper revenues translated into greater income for the government as Chile's biggest copper producer, Codelco, was a state-owned enterprise. Velasco had chosen to save the bulk of the copper revenues into two stabilization funds; by the end of August 2008, the collective amount represented more than 20% of Chile's GDP. Several critics wanted the funds to be used to improve the poor public education system, income gap, and other impending social issues. After all, Chile had one of the most unequal distributions of wealth in the world. Productivity was stagnant and economic growth had slowed down significantly since the 1990s. What should Velasco do amid growing public discontent? Was it really in Chile's best interest to keep saving the copper wealth?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/710019-PDF-ENG

Chile's Copper Surplus: The Road Not Taken (B)

Laura Alfaro, Dante Roscini, and Renee Kim
Harvard Business School Supplement 710-020

In 2009, Chile's Finance Minister Andres Velasco's fortunes had been reversed. His fiscal policy that had come under attack just a year ago had been used to finance a $4 billion fiscal stimulus package amid the global economic downturn. Velasco was now Chile's most popular minister. However, the future of Chile's fiscal policy was questionable with the election of a new president, Sebastian Pinera, the first conservative leader to lead Chile in two decades.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/710020-PDF-ENG

YES BANK: Mainstreaming Development into Indian Banking

Michael Chu and Namrata Arora
Harvard Business School Case 311-063

YES BANK, founded in 2003 and highly successful, has consistently been profitable meeting the Indian government's Priority Sector Lending (PSL) requirements, unlike virtually all other private sector banks, which view PSL activity as a necessary but loss-making part of their portfolio. To do this, YES BANK created a distinct Development Banking practice, under the purview of the Corporate Finance division. But now, the Development Banking team is contemplating going to the board to take the concept one step further: pro-actively investing in PSL-qualifying activities not as a matter of regulatory compliance but as business. Should the bank devote significant financial and human resources into an ambitious Financial Inclusion Program to serve previously unbanked rural populations through a rapid expansion of its branch network and the use of nonbank business correspondents? In addition, should the bank commit part of its scarce capital to Tatva Capital, a private equity venture focused on renewable energy, clean technology, waste management, water and sanitation, food and agribusiness, affordable housing, healthcare, and education and livelihood creation? Is the board ready to incorporate development banking into the mainstream of the bank, or will this turn out to be a major error in judgment?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/311063-PDF-ENG

The Export-Import Bank of the United States

C. Fritz Foley and Matthew Johnson
Harvard Business School Case 211-032

In the fall of 2009, Fred Hochberg, chairman of the Export-Import Bank of the United States (Ex-Im), and his team struggled to find a way to help finance the sale of Boeing aircraft to Emirates. Ex-Im responds to the challenges in the credit market with an innovative offering. This case provides students with an opportunity to analyze the structure and activities of an export credit agency and to value the expected costs of issuing a loan guarantee.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211032-PDF-ENG

Chances Are?

Hanna W. Halaburda and Aldo Sesia Jr.
Harvard Business School Case 711-417

The case describes two alternative elective course assignment procedures: Harvard Business School's lottery-based system and Kellogg Graduate School of Management's bidding-based system. The case has been designed to discuss the benefits and drawbacks of each system and their desirability (or lack thereof) depending on the context (the broader business system) within which they are implemented. The case also describes the draft used by the NBA to assign new players to teams. This allows for a discussion of whether a similar system may be preferable to lottery-based or bidding-based procedures to assign students to courses in business schools.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/711417-PDF-ENG

Plavix: Drugs in the Age of Personalized Medicine

Richard G. Hamermesh, Mara G. Aspinall, and Rachel Gordon
Harvard Business School Note 811-001

PIavix, one of the world's best selling drugs in 2010, appears to have a limited future. Its patent was due to expire soon, and recently new data had been discovered that indicated that a small subset of the population would be at risk for stroke, heart attack, or even death if they took PIavix. As a result, the FDA had added a black box warning—the agency's most severe—to Plavix's label in 2010. In addition, it had been discovered that the common combination of Plavix and Prilosec, an over-the-counter drug, could adversely affect patients. Finally, Plavix faced new competition from two new drugs with different mechanisms of action. This case reviews the recent history of Plavix in greater detail to encourage a discussion of the following questions: How might the current manufacturers of Plavix handle these emerging threats to their leading blockbuster? How might Plavix's potential competitors utilize Plavix's mixed history to their advantage? How should genotyping be integrated into the clinical care of patients in the light of emerging knowledge?

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/811001-PDF-ENG

Enman Oil, Inc. (A)

David F. Hawkins
Harvard Business School Case 111-042

Company pursues ways to reduce its debt-to-equity ratio by resorting to off-balance sheet debt transactions.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/111042-PDF-ENG

Purchase this supplement (B):
http://cb.hbsp.harvard.edu/cb/product/111043-PDF-ENG

Purchase this supplement (C):
http://cb.hbsp.harvard.edu/cb/product/111044-PDF-ENG

Purchase this supplement (D):
http://cb.hbsp.harvard.edu/cb/product/111045-PDF-ENG

Purchase this supplement (E):
http://cb.hbsp.harvard.edu/cb/product/111046-PDF-ENG

Purchase this supplement (F):
http://cb.hbsp.harvard.edu/cb/product/111057-PDF-ENG

Urban Water Partners (A)

Karthik Ramanna, George Serafeim, and Aldo Sesia Jr.
Harvard Business School Case 111-016

The case explores a new business venture to bring clean water to residents of Dar es Salaam, Tanzania, who otherwise cannot afford it. Management has enough money to get the company through August 2010 but needs more capital thereafter. An HBS alumnus is interested in investing in the company. Management needs to revisit its financial assumptions; decide on an incentive structure for its proposed network of local water vendors; and put together a pro-forma income statement, cashflow statement, and balance sheet in anticipation of meeting with the investor.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/111016-PDF-ENG

Purchase this supplement (B):
http://cb.hbsp.harvard.edu/cb/product/111029-PDF-ENG

Lessons Learned? Brooksley Born & the OTC Derivatives Market (A)

Clayton S. Rose and David Lane
Harvard Business School Case 311-044

On May 7, 1998, the U.S. Commodity Futures Trading Commission, chaired by Brooksley Born, issued a "Concept Release" inviting public comment on the relevance and appropriateness of existing regulation of the over-the-counter (OTC) derivatives market, a market with a notional value of $29 trillion dollars. The CFTC Concept Release, often a precursor to regulatory proposals, sought analysis of "the benefits and burdens of any potential regulatory modifications in light of current market realities." The Release was not welcomed by other regulators or by the Clinton administration. Just hours after it was published, U.S. Treasury Secretary Robert Rubin, Federal Reserve Board Chairman Alan Greenspan, and Securities and Exchange Commission Chairman Arthur Levitt announced their "grave concerns" about it in an unusual joint press release that minced no words. This case explores the battle between Born, on the one hand, and a large number of policymakers, regulators, legislators, and industry representatives, on the other, over whether and how greater regulatory oversight should be applied to the OTC derivative market. Born was defeated in her efforts; OTC derivatives played a central role in the 2008-09 financial crisis.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/311044-PDF-ENG

Lessons Learned? Brooksley Born & the OTC Derivatives Market (B)

Clayton S. Rose and David Lane
Harvard Business School Supplement 311-070

This (B) case provides the 2009 reflections of former SEC Chairman Arthur Levitt on CFTC Chairman Brooksley Born's 1998 efforts to consider regulating the OTC derivative market. It also provides a summary of the aspects of the 2010 Dodd-Frank Act that regulate these derivatives.

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http://cb.hbsp.harvard.edu/cb/product/311070-PDF-ENG

The Cage-Free Egg Movement

Michael W. Toffel and Stephanie van Sice
Harvard Business School Note 611-021

Describes the social movement confronting conventional egg production techniques (battery cages) based on animal welfare concerns, and some merits and drawbacks of cage-free alternatives. Highlights animal rights activist campaigns, political and regulatory responses, and announcements by some companies to shift egg purchases or sales from conventional to alternative production methods.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/611021-PDF-ENG