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.

April 19

For Coca-Cola executives, one of their first introductions on the power of social networking wasn't necessarily a welcome one. A user-generated video showed volcanic bottles of Diet Coke, ignited by Mentos mouth mints. It went viral. A new case, "Coca-Cola on Facebook," written by professor John Deighton and research associate Leora Kornfeld, reveals the discussions as marketing exec Michael Donnelly considers how best to open up the Coca-Cola Company brand to the wild west of social media.

Coca-Cola competitor PepsiCo is also featured in a case this week. "Cash Flow Productivity at PepsiCo: Communicating Value to Retailers," written by professor Francisco de Asis Martinez-Jerez and research associate Lisa Brem, looks in as the food and beverage giant develops a new metric to convince retailers to think Pepsi in their merchandising decisions.

On the working paper front, professor Kristina Steffenson McElheran checks in with "Do Market Leaders Lead in Business Process Innovation? The Case(s) of E-Business Adoption." The paper investigates the relationship between market position and the adoption of IT-enabled process innovations in the context of e-buying and e-selling adoption.

 

Publications

What to Ask the Person in the Mirror: The Seven Tests of Highly Effective Leaders

Abstract

Successful leaders know that leadership is less often about having all the answers—and more often about asking the right questions. The challenge lies in being able to step back, reflect, and ask the key questions that are critical to your performance and your organization's effectiveness. In What to Ask the Person in the Mirror, HBS professor and business leader Robert Kaplan presents a process for asking the big questions that will enable you to diagnose problems, change course if necessary, and advance your career. He lays out areas of inquiry, including questions such as (1) Do I clearly articulate my vision and top priorities?; (2) Does the way I spend my time enable me to achieve my top priorities?; (3) Do I give subordinates timely and direct feedback they can act on? Have I developed a succession roadmap?; and (4) Is my leadership style still effective, and does it reflect who I truly am? This highly readable and practical guide helps you learn to ask the right questions—and work through the answers in ways that are right for you. By asking these questions, you can craft new strategies for staying on top of your game.

Publisher's Link: http://cb.hbsp.harvard.edu/cb/web/product_detail.seam?E=2420198&R=10352-HBK-ENG&conversationId=129872

Local Dividend Clienteles

Abstract

: We exploit demographic variation to identify the effect of dividend demand on corporate payout policy. Retail investors tend to hold local stocks, and older investors prefer dividend-paying stocks. Together, these tendencies generate geographically varying demand for dividends. Firms headquartered in areas where seniors constitute a large fraction of the population are more likely to pay dividends, initiate dividends, and have higher dividend yields. We also provide indirect evidence as to why managers may respond to the demand for dividends from local seniors. Overall, these results are consistent with the notion that the investor base affects corporate policy choices.

Utilizing Team Member Expertise Under Pressure

Abstract

Pressure intensifies on a strategy consulting team as they deliver a critical project, and the team manager faces a dilemma about her changing role on the team. Although she had been the key decision-maker in the early weeks of the project, Julia Narino now finds that her team increasingly discounts her deep client expertise while deferring to the senior partner's more generalized contributions. Trouble arises because the client expects the team to deliver a highly customized solution that absolutely requires Julia's expertise. This case presents an opportunity for students to analyze two prevailing aspects of organizational life: working in teams and working under pressure. This case also offers a platform for instructors to introduce the concept of threat rigidity to the class and explore some of the team behaviors that result from this condition.

Book: http://www.amazon.com/Group-Communication-Analysis-Appreciation-Application/dp/0757582958/ref=cm_cmu_up_thanks_hdr

Organizing the In-between: The Population Dynamics of Network-weaving Organizations in the Global Interstate Network

Abstract

This article examines the population dynamics and viability of network weavers, which are organizations that provide network relations for others. An analysis of the population dynamics of the intergovernmental organizations (IGOs) that are the basis of the interstate networks that influenced global economic relations, peace, and democracy in the 1815-2000 period shows that IGO founding and failure depends on the ease and value of specific interstate relations. Results indicate that network-weaving organizations are easier to operate when they encompass proximate and similar actors, yet they also reap rewards for bringing together otherwise disconnected actors, in particular, actors with conflicts. Combined, these organizational processes can account for the high clustering and short-path distance between nodes that are characteristic of the endemic small-world network structure. Furthermore, the study shows that the concepts of legitimacy and competition can be applied to identify particular spaces in the network of bilateral relations that are more or less hospitable for IGOs.

Read the paper: http://www.torfason.net/site/wp-content/uploads/Ingram-and-Torfason-2010-Organizing-the-In-Between.pdf

 

Working Papers

Broadening Focus: Spillovers, Complementarities and Specialization in the Hospital Industry

Abstract

The long-standing argument that focused operations outperform others stands in contrast to claims about the benefits of broader operational scope. The performance benefits of focus are typically attributed to reduced complexity, lower uncertainty, and the development of specialized expertise, while the benefits of greater breadth are linked to the economies of scope achieved by sharing common resources, such as advertising or production capacity, across activities. Within the literature on corporate strategy, this tension between focus and breadth is reconciled by the concept of related diversification (i.e., a firm with multiple operating units, each specializing in distinct but related activities). We consider whether there are similar benefits to related diversification within an operating unit and examine the mechanism that generates these benefits. Using the empirical context of cardiovascular care within hospitals, we first examine the relationship between a hospital's level of specialization in cardiovascular care and the quality of its clinical performance on cardiovascular patients. We find that, on average, focus has a positive effect on quality performance. We then distinguish between positive spillovers and complementarities to examine the following: (1) the extent to which a hospital's specialization in areas related to cardiovascular care directly impacts performance on cardiovascular patients (positive spillovers) and (2) whether the marginal benefit of a hospital's focus in cardiovascular care depends on the degree to which the hospital "co-specializes" in related areas (complementarities). In our setting, we find evidence of such complementarities in specialization.

Download the paper: http://www.hbs.edu/research/pdf/09-120.pdf

The Contingent Effect of Absorptive Capacity: An Open Innovation Analysis

Abstract

Technological advancement and innovation requires the integration of both external knowledge and internal inventiveness. In this paper, we unpack the concept of absorptive capacity and separately explore the effect of different types of prior experience on the capacity to adopt external knowledge and make internal inventions. We also measure how absorptive capacity is influenced by changes in design "paths." We investigate nine open source programming contests in which 875 software programmers submit over 4.7 million lines of code. We conduct our analysis at the individual level and identify how programmers gain the ability to adopt and invent valuable code. Our evidence both confirms the theory of absorptive capacity and suggests refinements to it. We find that prior experience with both adoption and invention can indeed improve the capacity to adopt and invent valuable code, but we find that experience with adoption has the largest effect on invention capacity. We also find that major changes in the design "path" both advance and impede absorptive capacity. Changes in path allow rapid experience with alternative ideas, and this eventually aids adoption and invention capacity. However, these changes temporarily harm the ability of programmers to create valuable inventions. We discuss the implications of our findings for the literature on absorptive capacity and open and distributed innovation.

Download the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1802696

Do Market Leaders Lead in Business Process Innovation? The Case(s) of E-Business Adoption

Abstract

This paper investigates the relationship between market position and the adoption of IT-enabled process innovations. Prior research has focused overwhelmingly on product innovation and garnered mixed empirical support. I extend the literature into the understudied area of business process innovation, developing a framework for classifying innovations based on the complexity, interdependence, and customer impact of the underlying business process. I test the framework's predictions in the context of e-buying and e-selling adoption. Leveraging detailed U.S. Census data, I find robust evidence that market leaders were significantly more likely to adopt the incremental innovation of e-buying but commensurately less likely to adopt the more radical practice of e-selling. The findings highlight the strategic significance of adjustment costs and co-invention capabilities in technology adoption, particularly as businesses grow more dependent on new technologies for their operational and competitive performance.

Download the paper: http://www.hbs.edu/research/pdf/10-104.pdf

Network Effects in Countries' Adoption of IFRS

Abstract

If the differences in accounting standards across countries reflect relatively stable institutional differences (e.g., auditing technology, the rule of law, etc.), why did several countries rapidly, albeit in a staggered manner, adopt IFRS over local standards in the 2003-2008 period? We test the hypothesis that perceived network benefits from the extant worldwide adoption of IFRS can explain part of countries' shift away from local accounting standards. That is, as more jurisdictions with economic ties to a given country adopt IFRS, perceived benefits from lowering transactions costs to foreign financial-statement users increase and contribute significantly toward the country's decision to adopt IFRS. We find that perceived network benefits increase the degree of IFRS harmonization among countries, and that smaller countries have a differentially higher response to these perceived benefits. The results, robust to numerous alternative hypotheses and specifications, suggest IFRS adoption is self-reinforcing, which, in turn, has implications for the consequences of IFRS adoption.

Download the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1590245

 

Cases & Course Materials

Leaders Who Make a Difference: Joel Klein Brings Accountability to NYC DOE: Day 1

Joseph L. Bower and Sonja Ellingson Hout
Harvard Business School Case 311-032

Joel Klein took over the NYC Department of Education in 2002 and radically transformed the strategy and organization remarkably with improvements in performance. Day 1 of the two-case series focuses on the steps taken by Klein over his eight-year tenure. Supplementary video (both for homework and in class) provides Klein's thoughts about major developments.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/311032-PDF-ENG

Coca-Cola on Facebook

John Deighton and Leora Kornfeld
Harvard Business School Case 511-110

In late 2008, executives at Coca-Cola had to decide what to do with a fan-created page on Facebook that had amassed over one million followers in three months. From a legal point of view the fan-created page was in violation of Facebook's terms of service as a non-copyright holder was using the imagery and logo associated with a known brand. Facebook contacted Michael Donnelly, Group Director, Worldwide Interactive Marketing for The Coca-Cola Company, to let him know that he was in the position to take down the hugely popular, fan-created site; or, conversely, he could take it over and make it an official marketing channel for the company. Coke was already revisiting its social media policies, with the Diet Coke & Mentos user-generated video incident fresh in its memory. Those videos, which featured elaborate geysers with Diet Coke as their main ingredient, were among the most viewed online videos at the time but were not initially sanctioned by the company. Donnelly knew that opening up the brand to creative consumers was necessary, but he and his team had to figure out how and to what extent they should do so, while still protecting one of the world's most valuable brands.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/511110-PDF-ENG

Gold in 2011: Bubble or Safe Haven Asset?

Robin Greenwood and Benjamin Steiner
Harvard Business School Case 211-095

Case explores the pricing of gold in 2011. Is the pricing justified, or are we in a speculative bubble? What data are useful in determining a view on this question?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211095-PDF-ENG

Magna International, Inc. (A)

Timothy A. Luehrman and Yuhai Xuan
Harvard Business School Case 211-044

Magna International, Inc., a Canadian-based automotive parts manufacturer, is considering whether and how to unwind its dual-class ownership structure. A family trust controlled by the founder owns a 0.65% economic interest in the company but has 66% of the votes via a super-voting class of shares. Officers of the company are considering how to fashion a transaction that will end the family's control and win the approval of both classes of shareholders. The Magna (A) case asks the students to weigh the costs and benefits of dual-class ownership and the best way to convert to single-class. The Magna (B) case describes the proposal that Magna's board put to a shareholder vote. Students are asked to evaluate it and decide whether they would approve it.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211044-PDF-ENG

Purchase this supplement (B):
http://cb.hbsp.harvard.edu/cb/product/211045-PDF-ENG

Cash Flow Productivity at PepsiCo: Communicating Value to Retailers

F. Asís Martínez-Jerez and Lisa Brem
Harvard Business School Case 111-069

PepsiCo developed a new metric that better measured the value added by Pepsi products than did gross margin, the traditional metric used by retailers to determine shelf space and promotional activity. The new metric, cash flow productivity, captured the value of Pepsi's Direct-Store-Distribution (DSD) service and the strong attraction of its nationally advertised brands. Pepsi managers believed that their full service distribution service saved customers money and their strong brands generated more traffic and sales but that most retailers, looking only at gross margins, missed this added value. Pepsi managers struggled to craft a strategy that would convince retailers to adopt cash flow productivity as a metric for making merchandising decisions in their stores.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/111069-PDF-ENG

Emergia: Driving Profitability on Help Desk Contracts

F. Asís Martínez-Jerez and Lisa Brem
Harvard Business School Case 111-048

Emergia, a Spanish call center company, is trying to improve the margins from its Help Desk contract with Fonaveu, a large, strategically important customer. Emergia is considering tactics such as overdelivering on calls that incur lower costs (while underdelivering on high cost calls), offshoring the service to a country with lower labor costs, and sharing equipment and operators with other clients. However, Emergia also needs to think about how Fonaveu will react and whether these tactics will endanger the collaborative relationship the couples have been working toward.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/111048-PDF-ENG

HubSpot: Lower Churn Through Greater CHI

F. Asís Martínez-Jerez, Thomas Steenburgh, Jill Avery, and Lisa Brem
Harvard Business School Case 110-052

HubSpot, a web marketing startup, is under pressure from VCs to rapidly acquire new customers and to maintain a low level of customer churn. In the case, students explore the drivers of customer churn and uncover opportunities to increase customer retention across the customer selection, selling, and training processes. Students assess a metric, CHI (Customer Happiness Index), which HubSpot uses to predict which customers will churn, and suggest alternatives to improve the firm's predictions. Students develop programs to reduce churn post hoc and then reengineer the company's marketing, selling, and customer relationship management processes to manage churn proactively through market segmentation and targeting, product design, and customer interactions.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/110052-PDF-ENG

ALAC International

Richard S. Ruback and Royce Yudkoff
Harvard Business School Case 211-065

ALAC was a small importer of specialty industrial chemicals. The case explores the different financing alternatives to facilitate the company's explosive growth in working capital. At the end of 2009, the company was awarded the United States distributorship for the specialty chemical di-isononyl phthalate (DINP) from a large Taiwanese producer and had almost tripled its sales in 2010. It expected to double its sales in 2011 and to dramatically increase its profits. ALAC critically needed to obtain financing for the explosive growth in its inventory and accounts receivable balances.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211065-PDF-ENG

Businesses for Sale by Briggs Capital, 2010

Richard S. Ruback and Royce Yudkoff
Harvard Business School Case 211-088

Briggs Capital was a regional mergers and acquisitions advisory firm that helped owners sell their small firms. The case presents a company that was for sale in the fall of 2010—a troubled manufacturer of post and beam style homes and log homes. Using the actual information that was available to potential buyers, students evaluate the potential acquisition.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211088-PDF-ENG

Executive Compensation at Talent Partners

Richard S. Ruback and Royce Yudkoff
Harvard Business School Case 211-073

Talent Partners' CEO was very successful at growing the business and establishing its leadership position. He was compensated with a mix of salary and options, and he did not own any equity in the company. The options were set so that if Talent Partners achieved its financial plan over the next five years, about half of his total compensation would come from the options.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211073-PDF-ENG

Gemini Investors

Richard S. Ruback and Royce Yudkoff
Harvard Business School Case 211-066

Gemini Investors was a private equity firm focused on small- and lower-middle market businesses. Gemini's target investment size was between $4 million and $6 million, and a typical portfolio company had revenue of between $8 million and $30 million. In early 2010, Gemini was completing the investment of Gemini's Fund IV, and it was deciding whether it should raise a fund sized similarly to its prior funds, or alternatively, raise a significantly larger fund.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211066-PDF-ENG

Greg Mazur and the Purchase of Great Eastern Premium Pet Foods

Richard S. Ruback and Royce Yudkoff
Harvard Business School Case 211-085

Greg Mazur decided to purchase a small business after graduating from the Harvard Business School. The case explores his decision about whether or not he should finalize his deal to purchase Great Eastern Premium Pet Foods, Inc. (GEPP). It gives students the opportunity to consider his search process, his due diligence about the company, his post-purchase plans, his valuation analysis, and the structure of the potential transaction.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211085-PDF-ENG

Next Street, LLC

Richard S. Ruback and Royce Yudkoff
Harvard Business School Case 211-094

Next Street Financial, LLC was a modern merchant bank that provided high quality advisory services and capital to small- and mid-sized inner city businesses. Next Street was a for-profit business that aimed to increase the growth, profitability, and success of its client companies, thereby enhancing economic development, wealth, and job creation in the inner city. The advisory component of its mission seemed well underway, but raising a fund to directly finance client companies had proved challenging. As Next Street considered expanding its capacity to help clients achieve their growth potential, the firm was deciding between raising a fund or focusing its resources on expanding its abilities to more effectively help its clients obtain financing from other institutions.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211094-PDF-ENG

Red Hen Baking Company

Richard S. Ruback and Royce Yudkoff
Harvard Business School Case 211-091

In 2007, the Red Hen Baking Company was deciding whether to move from its cramped and inefficient facility to a new facility. It had been in business about eight years, and 2006 was the first year RHB realized a profit that was over $50,000. The added annual cost of the new location was about $58,000 and would require a $300,000 build-out. While the owner of Red Hen was excited about the possibility of a new, efficient bakery, he wondered if it was worth the added expense and risk.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/211091-PDF-ENG

Suntech Power

Richard H.K. Vietor
Harvard Business School Case 710-013

Suntech, a Chinese manufacturer of photovoltaic cells and solar panels, is the third largest solar company in the world. About 90% of its sales have been in Europe—especially Germany and Spain. But with its new "pluto" technology, and with new governmental subsidies in China, Japan, and the U.S., Suntech is shifting its focus—first to the U.S., and then to China and Japan. And it has recently moved downstream in the U.S., into systems integration and independent power. The case reviews the structure of competition in solar power and evaluates Suntech's new strategy.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/710013-PDF-ENG