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.

Feb. 23

Companies that compete by offering a high level of service are particularly vulnerable to lose customers— even longtime customers—when entrants offer increased service competition, according to new research in the retail banking industry by Ryan W. Buell, Dennis Campbell, and Frances X. Frei. "We show that it is the high quality incumbent's most valuable customers, those with the longest tenure, most products, and highest balances, who are the most vulnerable to superior service alternatives." Read How Do Incumbents Fare in the Face of Increased Service Competition?

What is the best decision when there is a shortage of resources or attention to carry it out? Delay is often chosen, but may not be the best long-term answer, states the paper Delay as Agenda Setting, by James. J. Anton and Dennis A. Yao. Deferring decisions keeps them on the agenda, affecting the dynamics of future meetings.

In the third quarter of 2010, KFC's Chinese operation Yum! surpassed US revenues for the first time, and could be double the size of the American business within five years. Opening a new restaurant every day, Yum!'s leader Sam Su is thinking about how to fend off problems facing the fast-food industry in the West. The dilemma is considered in the case Yum! China.

 

Publications

Engineers and the State in Modern China

An abstract is unavailable at this time.

Publisher's Link: http://www.informaworld.com/smpp/title~db=all~content=t927286744

Political Instability: Effects on Financial Development, Roots in the Severity of Economic Inequality

Abstract

We here bring forward strong evidence that political instability impedes financial development, with its variation a primary determinant of differences in financial development around the world. As such, it needs to be added to the short list of major determinants of financial development. First, structural conditions first postulated by Engerman and Sokoloff (2002) as generating long-term inequality are shown here empirically to be exogenous determinants of political instability. Second, that exogenously determined political instability in turn holds back financial development, even when we control for factors prominent in the last decade's cross-country studies of financial development. The findings indicate that inequality-perpetuating conditions that result in political instability are fundamental roadblocks for international organizations like the World Bank that seek to promote financial development. The evidence here includes country fixed effect regressions and an instrumental model inspired by Engerman and Sokoloff's (2002) work, which to our knowledge has not yet been used in finance and which passes prevailing tests as valid instruments. Four conventional measures of national political instability—Alesina and Perotti's (1996) well-known index of instability, a subsequent index derived from Banks' (2005) work, and two indices of managerial perceptions of nation-by-nation political instability—persistently predict a wide range of national financial development outcomes for recent decades. Political instability's significance is time consistent in cross-sectional regressions back to the 1960s, the period when the key data becomes available; robust in both country fixed-effects and instrumental variable regressions; and consistent across multiple measures of instability and of financial development. Overall, the results indicate the existence of an important channel running from structural inequality to political instability, principally in nondemocratic settings, and then to financial backwardness. The robust significance of that channel extends existing work demonstrating the importance of political economy explanations for financial development and financial backwardness. It should help to better understand which policies will work for financial development, because political instability has causes, cures, and effects quite distinct from those of many of the key institutions most studied in the past decade as explaining financial backwardness.

Download the paper: http://www.people.hbs.edu/jsiegel/RoeSiegel_JCE_20110203.pdf

 

Working Papers

Delay as Agenda Setting

Abstract

In this paper we examine a class of dynamic decision-making processes that involve endogenous commitment. Our analysis is relevant to group decision-making settings as well as to hierarchical decision-making settings in which, for example, subordinates attempt to influence their superiors. An inability to commit leads to the possibility of strategic delay by decision participants who differ in their preferences and are limited by the resources they can allocate to influence decisions. We focus on sources of delay caused by the strategic interaction of decision makers over time and find that the opportunity to delay decisions leads the participants to sometimes act against their short-run interests. Two classes of activity of this type emerge, which we refer to as focusing and pinning. We also explore how strategic delay alters the benefits from agenda setting.

Download the paper: http://www.hbs.edu/research/pdf/11-082.pdf

Individual Rationality and Participation in Large Scale, Multi-Hospital Kidney Exchange

Abstract

As multi-hospital kidney exchange clearinghouses have grown, the set of players has grown from patients and surgeons to include hospitals. Hospitals have the option of enrolling only their hard-to-match patient-donor pairs, while conducting easily arranged exchanges internally. This behavior has already started to be observed. We show that the cost of making it individually rational for hospitals to participate fully is low in almost every large exchange pool (although the worst-case cost is very high), while the cost of failing to guarantee individually rational allocations could be large, in terms of lost transplants. We also identify an incentive compatible mechanism.

Download the paper: http://papers.nber.org/papers/w16720

How Do Incumbents Fare in the Face of Increased Service Competition?

Abstract

We explore the conditions under which service competition leads to customer defection from an incumbent and which customers are most vulnerable to its effects. We find that customers defect at a higher rate from the incumbent following increased service competition only when the incumbent offers high quality service relative to existing competitors in a local market. We provide evidence that this result is due to a sorting effect whereby the incumbent attracts service (price) sensitive customers in markets where it has supplied relatively high (low) levels of service quality in the past. Furthermore, we show that it is the high quality incumbent's most valuable customers, those with the longest tenure, most products, and highest balances, who are the most vulnerable to superior service alternatives. Along the way, we also show that firms trade off price and service quality and that when the incumbent offers relatively low service quality in a local market, it is susceptible to the entry or expansion of inferior service (price) competitors. Our results appear to have long-run implications whereby sustaining a high level of service relative to local competitors leads the incumbent to attract and retain higher value customers over time.

Download the paper: http://www.hbs.edu/research/pdf/11-084.pdf

Big BRICs, Weak Foundations: The Beginning of Public Elementary Education in Brazil, Russia, India, and China, 1880-1930

Abstract

Our paper provides a comparative perspective on the development of public primary education in four of the largest developing economies circa 1910, BRIC-Brazil, Russia, India, and China. These four countries encompassed almost 50% of the world's population in 1910, but remarkably few of their citizens attended any school in the early 20th century. We present new, comparable data on school inputs and outputs for BRIC that are drawn from a variety of archival and published sources. Similar to recent studies that emphasize the importance of income, political decentralization, and the level of political voice to the spread of primary education in developed economies, we also find these factors to be important in the context of BRIC. We also outline other factors such as local ethnic and religious heterogeneity, the institutional legacies of colonialism and serfdom, and, especially, the characteristics of the political and economic elite that help explain the low achievement levels of these countries and the incredible amount of heterogeneity within each BRIC.

Download the paper: http://www.hbs.edu/research/pdf/11-083.pdf

Innovating at the World's Crossroads: How Multicultural Networks Promote Creativity

Abstract

This research examines the effects of multicultural social networks on individuals' creative performance. Combining network analysis with experimental methods, two studies using different samples found that networks' degree of cultural heterogeneity positively predicts creativity on tasks that draw on varied cultural-knowledge resources but not on other tasks. The results also indicate that a culturally heterogeneous network increases the likelihood of receiving culture-related novel ideas from others in the network whether or not they share one's culture of origin. This finding sheds light on the mechanisms that underlie multicultural networks' effects on creativity. Theoretical and practical implications for creativity and networking are discussed.

Download the paper: http://www.hbs.edu/research/pdf/11-085.pdf

 

Cases & Course Materials

Yum! China

David E., Bell and Mary Shelman
Harvard Business School Case 511-040

Since the first KFC opened in China in 1987, Yum—under Sam Su's leadership—had built the largest restaurant company by far in mainland China. Averaging one new restaurant opening a day for the past five years, in 2010 Yum ran over 3,600 restaurants in 650 cities and employed over 250,000 people, many of them college students in their first jobs. In the third quarter of 2010, Yum China's revenues surpassed U.S. revenues for the first time, and many analysts expected that Yum's China business—driven by a rapidly growing middle class—would be twice as large as its U.S. business within five years. But before rushing out to open thousands more stores, Su wondered what the company should do to forestall some of the problems plaguing the fast food industry in the West.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/511040-PDF-ENG

BonneSante S.A.

David F. Hawkins
Harvard Business School Case 111-063

IASB and FASB propose new lease accounting rules, and the owner of a French chain of fast food outlets is concerned about the impact on his company's balance sheets.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/111063-PDF-ENG

The Dow Acquisition of Rohm and Haas (A)

Jay W. Lorsch and Melissa Barton
Harvard Business School Case 411-001

The Rohm and Haas board decided how to move forward after its largest shareholder chose to sell all of its shares in the company.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/411001-PDF-ENG

The Dow Acquisition of Rohm and Haas (B)

Jay W. Lorsch and Melissa Barton
Harvard Business School Supplement 411-002

The Dow board made a bid for Rohm and Haas Company in order to transition its portfolio away from commodity chemicals towards specialty chemicals.

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http://cb.hbsp.harvard.edu/cb/product/411002-PDF-ENG

The Dow Acquisition of Rohm and Haas (C)

Jay W. Lorsch and Melissa Barton
Harvard Business School Supplement 411-003

The global economy entered a crippling recession in the fourth quarter of 2008, and Dow lost its primary source of funding for its planned acquisition of Rohm and Haas.

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http://cb.hbsp.harvard.edu/cb/product/411003-PDF-ENG

The Dow Acquisition of Rohm and Haas (D)

Jay W. Lorsch and Melissa Barton
Harvard Business School Supplement 411-004

Dow's board and management team worked on arranging appropriate financing to complete the acquisition of Rohm and Haas. Meanwhile, the board of Rohm and Haas filed suit against Dow after it delayed the completion of the acquisition.

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http://cb.hbsp.harvard.edu/cb/product/411004-PDF-ENG

The Dow Acquisition of Rohm and Haas (E)

Jay W. Lorsch and Melissa Barton
Harvard Business School Supplement 411-005

Dow completed the acquisition of Rohm and Haas and escaped a battle in a Delaware courtroom.

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http://cb.hbsp.harvard.edu/cb/product/411005-PDF-ENG

Financing Higher Education in Australia

David A. Moss and Stephanie Lo
Harvard Business School Case 711-047

Even before Australian lawmakers abolished university tuition in 1973, students in Australia had long benefited from low tuition and large government subsidies. By the early 1980s, however, the nation's universities faced growing budget challenges and an apparent shortage of capacity as demand for higher education surged. Policymakers, cognizant of a growing budget deficit as well as a hard-hitting recession, hesitated to provide increased funding to higher education. The debate over how best to finance Australian higher education finally came to a head in the late 1980s, following publication of the Report of the Committee on Higher Education Funding (commonly known as the Wran Report). Although the Wran Committee had considered several potential funding schemes, it ultimately proposed a radical system in which students would pay tuition financed through income-contingent loans provided by the government. The Wran Report proved to be of particular interest to the Australian prime minister, Robert Hawke. The government's fiscal position seemed to demand that educational financing be overhauled, but there was no consensus on how best to do this. Could the prime minister convince his Australian Labor Party to abandon the free education plank in its platform? And even if he could, how could he be sure that the Wran Committee's strategy was the right one and that its recommendations were workable? Would following an American model of full tuition for higher education and government-guaranteed student loans make more sense? These were just a few of the questions that the prime minister confronted as he contemplated new approaches for financing higher education in Australia.

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http://cb.hbsp.harvard.edu/cb/product/711047-PDF-ENG

Iris Running Crane: December 2009

Matthew Rhodes-Kropf, Josh Lerner, and Ann Leamon
Harvard Business School Case 810-073

Iris Running Crane, an MBA candidate, must choose among three different job offers in private equity. One is with a top-tier megafund buyout operation; the second with a geographically focused mid-market fund; and the third with a one-time top-tier fund that is trying to reposition itself as a turnaround expert, starting with its own portfolio. Iris must consider the advantages and drawbacks of each position and how each will help her achieve her personal goals.

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http://cb.hbsp.harvard.edu/cb/product/810073-PDF-ENG

Founder-CEO Succession at Acer

Noam Wasserman, Michael Shih-ta Chen, and Keith Chi-ho Wong
Harvard Business School Case 811-062

Stan Shih, founder-CEO of Acer, Inc., had proactively chosen and transitioned the "perfect" successor as CEO but was now faced with major problems. Over the last two years, his heir apparent, Leonard Liu, had made the changes he had been hired to make, including revamping the organization structure and instilling a new corporate culture that emphasized accountability. However, such changes had caused numerous clashes between him and other cofounders of the company, in particular Shih's wife, Carolyn. Liu had now suggested that "Carolyn should retire into her kitchen." Faced with office infighting and increasing clashes between the markedly different Western and Chinese styles of management, Shih needed Liu to manage the increasing complexity of global competition. However, Shih was now wondering if he had made the right decision to appoint Liu as his successor.

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http://cb.hbsp.harvard.edu/cb/product/811062-PDF-ENG