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.

July 26

Improving policy debate

As the debate over the US debt limit rages on, a group of scholars has prepared a paper on how to improve public policy debate in general. "Policy Bundling to Overcome Loss Aversion: A Method for Improving Legislative Outcomes," notes that many policies that otherwise would benefit society are nevertheless defeated on arguments that the costs are larger than the gains. The researchers—Katherine L. Milkman, Mary Carol Mazza, Lisa L. Shu, Chia-Jung Tsay, and Max H. Bazerman—propose a process whereby related bills are "bundled" so that their collective pluses and minuses can be weighed as a group. "We argue this method can transform unpopular individual pieces of legislation, which would lack the support for implementation, into more popular policies," according to the scholars. The paper will be published in a forthcoming issue of Organizational Behavior and Human Decision Processes.

Taxing US foreign investment

Speaking of government policy, critics have lashed out at current tax law that allows US firms to defer taxes on unrepatriated income earned in foreign countries. This policy, it is argued, results in fewer tax dollars being collected at home. A new working paper by Mihir A. Desai, C. Fritz Foley, and James R. Hines, Jr., "Tax Policy and the Efficiency of U.S. Direct Investment Abroad" offers support that could favor the tax policy, however. Their research of both repatriated and unrepatriated income shows that US parent companies received considerably more from their foreign affiliates in investment returns—more than $1 trillion—than the affiliates absorbed in investment resources between 1982 and 2010.

Designing a strategic compensation system

Designing a compensation program to motivate desired behavior can be tricky. At PR firm Marshall & Gordon, where a serious strategic shift was occurring away from traditional PR work, CEO Kelly Browne was faced with creating a system that would shift the culture from individualistic toward collaborative. The case study, "Marshall & Gordon: Designing an Effective Compensation System (A)" will "deepen students' appreciation for the complexity of designing a compensation system that needs to motivate star performers while encouraging the collaboration necessary to align employees' behaviors with a new firm strategy," according to authors Heidi K. Gardner and Kerry Herman.

 

Publications

Policy Bundling to Overcome Loss Aversion: A Method for Improving Legislative Outcomes

Abstract

Policies that would create net benefits for society that contain salient costs frequently lack enough support for enactment because losses loom larger than gains. To address this consequence of loss aversion, we propose a policy-bundling technique in which related bills involving both losses and gains are combined to offset separate bills' costs while preserving their net benefits. We argue this method can transform unpopular individual pieces of legislation, which would lack the support for implementation, into more popular policies. Study 1 confirms that bundling increases support for bills with costs and benefits and that bundled legislation is valued more than the sum of its parts. Study 2 shows this finding stems from a diminished focus on losses and heightened focus on gains. Study 3 extends our findings to policies involving costs and benefits of the same type (e.g., lives) generated by different sources (e.g., food versus fire safety).

Up Close and Personal: Developing Foundations for Leader Development through Personalization of Management Learning

Abstract

This paper examines the process through which management students develop personal foundations (such as self-awareness, self-management, and a grounding life narrative) for the ongoing development and practice of leadership. We conducted an inductive, qualitative study of the Personal Development Elective, an innovative offering within the leadership curriculum of an international MBA, which gives participants the opportunity to work with a psychotherapist during the course. Our findings suggest that the interplay between student's work in the PDE and their overall MBA experience fosters a process of personalization of management learning. This process allows management education to provide the foundations for leaders' development by transforming potentially regressive MBA experiences into rich material for participants' personal learning, experimentation, and growth.

Under Threat: Responses to and the Consequences of Threats to Individuals' Identities

Abstract

I review and reconceptualize identity threat, defining it as an experience appraised as indicating potential harm to the value, meanings, or enactment of an identity. I also develop a theoretical model and propositions that generate insights into how individuals respond to identity threats originating from a range of sources. I use this theory to explore individual and organizational consequences of different identity threat responses and their implications for research on identity dynamics within organizations.

 

Working Papers

The Impact of Supplier Reliability Tracking on Customer Demand: Model and Estimation Methodology

Abstract

To set service levels, firms must understand how changes in service affect customer demand. Supplier reliability tracking is a process whereby customers use past supplier performance to build beliefs about supplier capabilities and hence about future supplier performance. This paper presents a multi-period model of suppliers selling substitutable products to a customer that engages in supplier reliability tracking. Using this analytical model, we observe how a supplier's service level performance molds a customer's beliefs as well as how a customer's beliefs affect its order quantities. We also provide a method for estimating the impact of changes in supplier performance on customer demand. Using data from Hugo Boss, a manufacturer of branded apparel, we find increases in supplier reliability to be associated with significant increases in orders from Hugo Boss's retailer customers.

Download the paper: http://www.hbs.edu/research/pdf/11-034.pdf

Tax Policy and the Efficiency of U.S. Direct Investment Abroad

Abstract

Deferral of U.S. taxes on foreign source income is commonly characterized as a subsidy to foreign investment, as reflected in its inclusion among "tax expenditures" and occasional calls for its repeal. This paper analyzes the extent to which tax deferral and other policies inefficiently subsidize U.S. direct investment abroad. Investments are dynamically inefficient if they consistently generate fewer returns to investors than they absorb in new investment funds. From 1982-2010, repatriated earnings from foreign affiliates exceeded net capital investments by $1.1 trillion in 2010 dollars; and from 1950-2010, repatriated earnings and net interest from foreign affiliates exceeded net equity investments and loans by $2.1 trillion in 2010 dollars. By either measure, cash flows received from abroad exceeded 160% of net investments, implying that foreign investment over these periods was dynamically efficient.

Download the paper: http://papers.nber.org/papers/w17202

Non-Audit Services and Financial Reporting Quality: Evidence from 1978-1980

Abstract

We provide evidence for the long-standing concern on auditor conflicts of interest from providing non-audit services (NAS) to audit clients by using rarely explored NAS fee data from 1978 to 1980. Using this earlier setting, we find cross-sectional evidence of improved earnings quality when auditors provide NAS, especially those related to information services. This is consistent with better audit quality from knowledge spillovers due to the joint offering of audit and consulting services. Events related to the repeal of these NAS disclosures in 1982 are associated with a small positive stock price reaction suggesting no adverse economic consequences of withdrawing NAS disclosures. Further, following the repeal of disclosure requirements we find no change in the earnings quality of client firms. In sum, data drawn from an earlier time period suggest that auditors' reputational incentives, possible synergies, and knowledge transfers imply that NAS offered by audit firms can be associated with improved audit and reporting quality in client firms.

Download the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1886489

Determinants of Successful Frontline Process Improvement: Action versus Analysis

Abstract

Senior manager participation is a key success driver for process improvement programs. To increase their participation, we designed an intervention in which senior managers worked with frontline staff to identify and solve safety-related problems over an 18-month period. On average, the 20 randomly selected treatment hospitals identified 17.3 problems per work area and solved 9.1 of these. However, their readmission rates and percentage increase in nurses' perceptions of safety improvement were no better than that of 48 control hospitals. Thus, we investigated drivers of successful program implementation within the set of treatment hospitals. We found that managers from hospitals with low and high perceived improvement identified similar numbers of problems. However, high perceived improvement hospitals took action on more problems. We found no benefit from selecting problems with the highest benefit-to-cost ratios because there was a flat landscape for problems' benefit-to-cost ratios. Thus, for safety improvement in hospitals, allocating resources to search for and select high benefit/cost problems appears to be of limited benefit versus allocating resources to take action on known problems. This approach also aligns with how managers actually selected problems for resolution efforts: problems that were easy to solve were more likely to be selected.

Download the paper: http://www.hbs.edu/research/pdf/10-047.pdf

 

Cases & Course Materials

Mandatory Environmental, Social, and Governance Disclosure in the European Union

Robert G. Eccles, George Serafeim, and Phillip Andrews
Harvard Business School Case 111-120

In 2011, the European Commission was deciding on how to best modify the existing European Union policy on corporate disclosure of environmental, social, and governance (ESG) information. Previous directives had recommended that European companies report ESG information, but now the EC was deciding if organizations should be required to disclose nonfinancial information. The EC had to determine what types of organizations would be required to disclose, which international framework would serve as a standard reporting guideline, and if ESG disclosure would be integrated with financial material in one annual report. This case outlines the history and trends of corporate social responsibility reporting to encourage a discussion around the decision points and implications of reporting regulations.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/111120-PDF-ENG

Global Knowledge Management at Danone (B)

Amy C. Edmondson, Ruth Dittrich, and Daniela Beyersdorfer
Harvard Business School Supplement 611-079

The (B) case gives an update on the development of knowledge management at Danone two years after the (A) case: The Networking Attitude spread throughout the company and the question is posed whether Danone should move to virtual networking in addition to face-to-face networking.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/611079-PDF-ENG

Global Knowledge Management at Danone (C)

Amy C. Edmondson, Ruth Dittrich, and Daniela Beyersdorfer
Harvard Business School Supplement 611-079

The (C) case provides an update on the B-case decision and describes the introduction of Dan 2.0, an internal social virtual network for the purpose of knowledge sharing in a company that was only used to face-to-face networking.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/611080-PDF-ENG

Marshall & Gordon: Designing an Effective Compensation System (A)

Heidi K. Gardner and Kerry Herman
Harvard Business School Case 411-038

CEO Kelly Browne wrestles with the design of a new compensation system to promote the collaboration and cross-selling necessary for supporting her firm's new strategy. Marshall Gordon International, a global public relations (PR) firm, has recently expanded its service offering to include Executive Positioning, which requires significantly more teamwork, higher-level client interaction, and more strategically minded consultants than their traditional PR work. The CEO is pressured to find a compensation system that helps retain and motivate the firm's valued PR consultants, attract new talent, and get all professionals aligned behind the new strategy.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/411038-PDF-ENG

Marshall & Gordon: Designing an Effective Compensation System (B)

Heidi K. Gardner and Kerry Herman
Harvard Business School Supplement 411-099

CEO Kelly Browne wrestles with the design and roll-out of a new compensation system to promote the collaboration necessary for supporting her firm's new strategy. Marshall Gordon International, a global public relations (PR) firm, has recently expanded its service offering to include Executive Positioning, which requires significantly more teamwork, higher-level client interaction, and more strategically minded consultants than their traditional PR work. The (B) case focuses on the choices the firm needs to make about roll-out, including how to measure aspects of consultants' performance, what performance management systems and processes need to support the compensation system, and who should have decision rights about consultants' variable compensation.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/411099-PDF-ENG