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.

September 13

HBS Cases: Lady Gaga

Lady Gaga is a huge international star, but just a few years ago the performer and her agent, Troy Carter, were making decisions that, if the wrong ones, could have short-circuited her career. In the new case "Lady Gaga," Anita Elberse and Michael Christensen tell the story from the manager's perspective. "The case provides rich insights into the artist's touring, recorded-music, and social-media activities, as well as supporting economic data," according to the authors. (Harvard Business School Working Knowledge will later this month publish a story on the case.)

Are they really "independent" directors?

They're called independent directors, but are they really? A forthcoming article in Management Science offers proof that companies appoint independents who are "overly sympathetic to management." In "Hiring Cheerleaders: Board Appointments of 'Independent' Directors," Lauren Cohen, Andrea Frazzini, and Christopher J. Malloy study boards that nominated former sell-side Wall Street analysts to be on their boards—analysts who actually covered the companies earlier in their careers. The researchers find that boards often nominate analysts who are overly bullish about the company's performance and who are not particularly star performers themselves.

When money is not the best motivator

How should NGOs and other nonprofit organizations motivate volunteers to do their best work? A new working paper finds that nonfinancial rewards are more effective than money. In "No Margin, No Mission? A Field Experiment on Incentives for Pro-Social Tasks," the researchers look at the efforts of volunteers in Zambia tasked with delivering information to local residents about female condoms. The analysis finds that nonfinancial rewards were more effective at eliciting effort than either financial gain or a volunteer contract. The most effective enticements promote effort of volunteers both by leveraging intrinsic motivation for the cause and by facilitating social comparison with their peers. Research by Nava Ashraf, Oriana Bandiera, and Kelsey Jack.

 

Publications

Higher Ambition: How Great Leaders Create Economic and Social Value

Abstract

Organizations must choose between people and profits, right? Wrong, argue the authors of Higher Ambition. In fact, as global competition stiffens and enterprises face increasing public scrutiny, successful leaders must win on all fronts-with their people, their customers, their communities, and their shareholders. Higher Ambition takes you inside the minds of some of the most successful and insightful leaders of our time, the CEOs from companies as diverse as Standard Chartered Bank, Infosys, Nokia, Cummins, IKEA, Tata, and Campbell's Soup. The authors reveal how these leaders from around the world are converging on a new management paradigm that unlocks the energy and potential of their people to deliver superior economic and social value.

Book: http://hbr.org/product/higher-ambition-how-great-leaders-create-economic-/an/12957-HBK-ENG

The Culture Cycle: How to Shape the Unseen Force That Transforms Performance

Abstract

The contribution of culture to organizational performance is both substantial and quantifiable. This book presents the results of field research that demonstrates how an effective culture can account for up to half of the differential in performance between organizations in the same business. The book describes a conceptual framework, "the culture cycle," for managing culture that comprises setting and meeting expectations; establishing trust, engagement, and ownership among employees and customers that makes possible the successful implementation of policies and practices creating a learning and innovative organization; and tracking results in terms of the "four Rs" of retention, referrals, returns to labor, and relationships with customers. It shows "the culture cycle" at work in practice based on data collected for the study.

Book: http://www.ftpress.com/store/product.aspx?isbn=0132779781

Hiring Cheerleaders: Board Appointments of 'Independent' Directors

Abstract

We provide evidence that firms appoint independent directors who are overly sympathetic to management, while still technically independent according to regulatory definitions. We explore a subset of independent directors for whom we have detailed, micro-level data on their views regarding the firm prior to being appointed to the board: sell-side analysts who are subsequently appointed to the boards of companies they previously covered. We find that boards appoint overly optimistic analysts who are also poor relative performers. The magnitude of the optimistic bias is large: 82.0% of appointed recommendations are strong-buy/buy recommendations, compared to 56.9% for all other analyst recommendations. We also show that appointed analysts' optimism is stronger at precisely those times when firms' benefits are larger. Lastly, we find that appointing firms are more likely to have management on the board nominating committee, appear to be poorly governed, and increase earnings management and CEO compensation following these board appointments.

Read the paper: http://www.people.hbs.edu/lcohen/pdffiles/malcofrazIII.pdf

Paying to Be Nice: Consistency and Costly Prosocial Behavior

Abstract

Building on previous research in economics and psychology, we propose that the costliness of initial prosocial behavior positively influences whether that behavior leads to consistent future behaviors. We suggest that costly prosocial behaviors serve as a signal of prosocial identity and that people subsequently behave in line with that self-perception. In contrast, costless prosocial acts do not signal much about one's prosocial identity, so subsequent behavior is less likely to be consistent and may even show the reductions in prosocial behavior associated with licensing. The results of a laboratory experiment and a large field experiment converge to support our account.

Read the paper: http://www.people.hbs.edu/mnorton/gneezy%20et%20al%20in%20press.pdf

The Persuasive 'Power' of Stigma?

Abstract

We predicted that able-bodied individuals and white Americans would have a difficult time saying no to persuasive appeals offered by disabled individuals and black Americans, due to their desire to make such interactions proceed smoothly. In two experiments, we show that members of stigmatized groups have a peculiar kind of persuasive ''power'' in face-to-face interactions with non-stigmatized individuals. In Experiment 1, wheelchair-bound confederates were more effective in publicly soliciting donations to a range of charities than confederates seated in a regular chair. In Experiment 2, whites changed their private attitudes more following face-to-face appeals from black than white confederates, an effect mediated by their increased efforts to appear agreeable by nodding and expressing agreement. This difference was eliminated when impression management concerns were minimized-when participants viewed the appeals on video.

Read the paper: http://www.people.hbs.edu/mnorton/norton dunn carney ariely.pdf

Foundations of Organizational Trust: What Matters to Different Stakeholders?

Abstract

Prior research on organizational trust has not rigorously examined the context specificity of trust nor distinguished between the potentially varying dimensions along which different stakeholders base their trust. As a result, dominant conceptualizations of organizational trust are overly generalized. Building on existing research on organizational trust and stakeholder theory, we introduce a more nuanced perspective on the nature of organizational trust. We develop a framework that distinguishes between organizational stakeholders along two dimensions: depth of the relationship (deep or shallow) and locus (internal or external). The framework identifies which of six dimensions of trustworthiness (benevolence, integrity, managerial competence, technical competence, transparency, and identification) will be relevant to which stakeholder type. We test the predictions of our framework using original survey data from 1,298 respondents across four stakeholder groups from four different organizations. The results reveal that the relevant dimensions of trustworthiness vary systematically across different stakeholder types and provide strong support for the validity of the depth and locus dimensions.

 

Working Papers

Sovereigns, Upstream Capital Flows and Global Imbalances

Abstract

We decompose capital flows—both debt and equity—into public and private components and study their relationship with productivity growth. This exercise reveals that international capital flows are mainly shaped by government decisions and sovereign to sovereign transactions. Specifically, we show (1) international capital flows net of government debt are positively correlated with growth and allocated according to the neoclassical predictions; (2) international capital flows net of official aid flows, which are mostly accounted as debt, are also positively correlated with productivity growth consistent with the predictions of the neoclassical model; and (3) public debt flows are negatively correlated with growth only if government debt is financed by another sovereign and not by private lenders. Our results show that the failure to consider official flows as the main driver of uphill flows and global imbalances is an important shortcoming of the recent literature.

Download the paper: http://www.hbs.edu/research/pdf/12-009.pdf

No Margin, No Mission? A Field Experiment on Incentives for Pro-Social Tasks

Abstract

A substantial body of research investigates the design of incentives in firms, yet less is known about incentives in organizations that hire individuals to perform tasks with positive social spillovers. We conduct a field experiment in which agents hired by a public health organization are randomly allocated to four groups. Agents in the control group receive a standard volunteer contract often offered for this type of task, whereas agents in the three treatment groups receive small financial rewards, large financial rewards, and non-financial rewards, respectively. The analysis yields three main findings. First, non-financial rewards are more effective at eliciting effort than either financial rewards or the volunteer contract. The effect of financial rewards, both large and small, is orders of magnitude smaller and not significantly different from zero. Second, non-financial rewards elicit effort both by leveraging intrinsic motivation for the cause and by facilitating social comparison among agents. Third, contrary to existing laboratory evidence, financial incentives do not crowd out intrinsic motivation in this setting.

Download the paper: http://www.hbs.edu/research/pdf/12-008.pdf

Business Model Innovation and Competitive Imitation: The Case of Sponsor-Based Business Models

Abstract

We study sponsor-based business model innovations where a firm monetizes its product through sponsors rather than setting prices to its customer base. We analyze strategic interactions between an innovative entrant and an incumbent where the incumbent may imitate the entrant's business model innovation once it is revealed. We find that an entrant needs to strategically choose whether to reveal its innovation by competing through the new business model or conceal it by adopting a traditional business model. We show that the value of business model innovation may be so substantial that an incumbent may prefer to compete in a duopoly rather than to remain a monopolist.

Download the paper: http://www.hbs.edu/research/pdf/11-003.pdf

Competing by Restricting Choice: The Case of Search Platforms

Abstract

We show that a two-sided platform can successfully compete by limiting the choice of potential matches it offers to its customers while charging higher prices than platforms with unrestricted choice. Starting from microfoundations, we find that increasing the number of potential matches not only has a positive effect due to larger choice, but also a negative effect due to competition between agents on the same side. Agents with heterogeneous outside options resolve the trade-off between the two effects differently. For agents with a lower outside option, the competitive effect is stronger than the choice effect. Hence, these agents have higher willingness to pay for a platform restricting choice. Agents with a higher outside option prefer a platform offering unrestricted choice. Therefore, the two platforms may coexist without the market tipping. Our model helps explain why platforms with different business models coexist in markets, including online dating, housing, and labor markets.

Download the paper: http://www.hbs.edu/research/pdf/10-098.pdf

Market Competition, Government Efficiency, and Profitability Around the World

Abstract

We examine how cross-country differences in product, capital, labor market competition, and government efficiency affect the rate of mean reversion of corporate profitability. Using a sample of 42,337 unique firms from 49 countries, we find that corporate profitability mean reverts faster in countries where product and capital markets are more competitive. Moreover, holding constant product, capital, and labor market competition we find that profitability mean reverts faster in countries with less efficient governments. The findings suggest that country-level factors have an economically significant impact on the rate of corporate profitability mean reversion. The study has implications for forecasting profitability and equity valuation in a global context.

Download the paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1865878

The Flexible Substitution Logit: Uncovering Category Expansion and Share Impacts of Marketing Instruments

Abstract

Different instruments are relevant for different marketing objectives (category demand expansion or market share stealing). To help brand managers make informed marketing mix decisions, it is essential that marketing mix models appropriately measure the different effects of marketing instruments. Discrete choice models that have been applied to this problem might not be adequate because they possess the Invariant Proportion of Substitution (IPS) property, which imposes counter-intuitive restrictions on individual choice behavior. Indeed our empirical application to prescription writing choices of physicians in the hyperlipidemia category shows this to be the case. We find that three commonly used models that all suffer from the IPS restriction-the homogeneous logit model, the nested logit model, and the random coefficient logit model-lead to counterintuitive estimates of the sources of demand gains due to increased marketing investments in Direct-to-Consumer Advertising (DTCA), detailing, and Meetings and Events (M&E). We then propose an alternative choice model specification that relaxes the IPS property-the so-called "flexible substitution" logit (FSL) model. The (random coefficient) FSL model predicts that sales gains from DTCA and M&E come primarily from the non-drug treatment (87.4% and 70.2% respectively), whereas gains from detailing come at the expense of competing drugs (84%). By contrast, the random coefficient logit model predicts that gains from DTCA, M&E, and detailing all would come largely from competing drugs.

Download the paper: http://www.hbs.edu/research/pdf/12-012.pdf

Doing What the Parents Want? The Effect of the Local Information Environment on the Investment Decisions of Multinational Corporations

Abstract

This paper examines how the external information environment in which foreign subsidiaries operate affects investment decisions in multinational corporations (MNCs). We hypothesize and find that foreign subsidiaries in country-industries with more transparent information environments better translate the local growth opportunities into investments. This result is consistent with the information environment helping MNCs monitor the subsidiary's investment decision. Cross-sectional tests show that the effect is larger when there is greater "distance" between the parent and the subsidiary. Our results suggest that the external information environment helps mitigate agency problems that arise when firms expand their operations across borders. This paper contributes to the literature by showing that the external information environment helps MNCs mitigate information frictions within the firm.

Download the paper: http://www.hbs.edu/research/pdf/12-011.pdf

 

Cases & Course Materials

Lady Gaga (A)

Anita Elberse and Michael Christensen
Harvard Business School Case 512-016

In September 2009, Troy Carter, manager of up-and-coming pop star Lady Gaga, has to decide on a new course of action now that his artist's planned co-headlining arena tour with hip-hop superstar Kanye West has been cancelled. Carter knows that continuing the tour, but doing so solo, comes with huge risks, but scaling it back to smaller theaters or postponing the tour altogether has disadvantages as well. Making matters more complicated, Carter also has to consider the implications for Gaga's partners, including the concert promoter Live Nation and the William Morris Endeavor agency. What is the best strategy? Designed to help students understand the decisions that helped propel Lady Gaga into one of the entertainment world's biggest names. Written from the perspective of her manager, the case provides rich insights into the artist's touring, recorded-music, and social-media activities, as well as supporting economic data.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/512016-PDF-ENG

Wii Encore?

Andrei Hagiu
Harvard Business School Case 712-416

Nintendo faced huge difficulties in July 2011. Sony's PlayStation and Microsoft's Xbox had caught up with the innovative motion-sensing controllers of the original Wii. And the new Nintendo 3DS handheld console had experienced a very disappointing start. Moreover, videogame consoles (particularly handheld ones) were facing increasing substitution from online and mobile games played on social networks and/or mobile phones (e.g. Zynga's Farmville). First, could Nintendo come up with a novel and innovative console once again (a Wii Encore) in order to escape head-to-head competition against its two larger rivals (Sony and Microsoft)? Second, how could Nintendo fend off the new substitutes, which were competing for a large portion of its customers?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/712416-PDF-ENG

Game Time Decision for AppDirect

Andrei Hagiu, Laura Arjona, and Emily Zhang
Harvard Business School Case 712-410

AppDirect is a start-up that offers small businesses software-as-a-service solutions through a business app marketplace and portal. Daniel Saks, co-founder and co-CEO, is faced with the key question of deciding distribution strategy: should AppDirect find channel partners or create a self-branded platform? The case describes the evolving business app market by analyzing the strategies and business models of competitors for both the marketplace and portal products. The marketplace offers small businesses search, trial, and purchase of software-as-a-service apps for a wide range of business needs from customer management to human resources, while the portal service gives businesses the ability to manage all their apps in one place from user management to single sign-on. The case encourages discussion on the evolution and future direction of this nascent market.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/712410-PDF-ENG

The Dannon Company: Marketing and Corporate Social Responsibility (B)

Christopher Marquis and Bobbi Thomason
Harvard Business School Supplement 412-047

Details Dannon's decision to initiate a cause marketing program focused on breast cancer to directly compete with Yoplait.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/412047-PDF-ENG

Fighting a Dangerous Financial Fire: The Federal Response to the Crisis of 2007-2009

David Moss and Cole Bolton
Harvard Business School Case 711-104

By the summer of 2009, many observers concluded that a catastrophic financial collapse-which seemed all but imminent the previous fall and winter-had been averted. Although the recession had still yet to be declared over, and the economy's footing remained far from solid, many believed that the worst of the crisis was over. With the global financial system no longer spiraling into an abyss, government officials, business leaders, and American taxpayers could now take stock of where they had been and where they should be headed. In particular, many wondered how the disaster had happened in the first place: what exactly had caused the brutal financial crisis of 2007-2009?

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/711104-PDF-ENG

China and the Yuan-Dollar Exchange Rate

Aldo Musacchio
Harvard Business School Note 711-110

This note explains how the People's Bank of China (PBOC) manages (some say manipulates) the dollar-yuan exchange rate. It discusses briefly the process of sterilization in China and the possible costs for the PBOC. Therefore, the note summarizes some of the main challenges the PBOC faces to contain inflation in China and to keep Chinese exports competitive.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/711110-PDF-ENG

The Clorox Company: Leveraging Green for Growth

Elie Ofek and Lauren Barley
Harvard Business School Case 512-009

The Clorox Company needs to decide on the marketing strategy going forward for its three sustainable brands, Brita, Burt's Bees, and Green Works. These brands had fared differently over the past three years, and each presents multiple courses of action heading into 2011. Management also needs to assess the role the sustainable brands play in Clorox's overall Corporate Responsibility strategy and the implications they have for the other brands (such as Clorox Bleach, 409, and Hidden Valley). The company has set aggressive financial targets in light of its upcoming centennial in 2013. Students need to evaluate whether sustainability is an enduring trend that Clorox should embrace for future growth or whether focusing on its core brands, which currently represent 90% of sales, is a better approach.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/512009-PDF-ENG

The Expansion of Ping An

Robert C. Pozen and Nina J. Yang
Harvard Business School Case 311-133

In June 2010, Mingzhe Ma, chairman and chief executive officer of Ping An Insurance (Group) Company of China ("Ping An" or "the Company"), sat down with Sun Jianyi, vice chief executive officer and executive vice president at Ping An, to discuss the future direction of the Company. They would have to answer questions at the upcoming shareholder meeting about Ping An's financial strategy for diversification within China and globally. Ping An had been founded by Ma in 1988 and had since grown into China's second largest life insurer. While Ping An had achieved past success in insurance, it looked to expand its business going forward. Ping An's ambition was to transform itself into a global financial conglomerate, with banking and investment, as well as insurance operations. Ping An's recent efforts at globalization and diversification had been challenging. In a highly publicized transaction, Ping An made an untimely investment in Fortis, a large European bank, which failed in the global financial crisis in 2008. Ping An spent close to 24 billion Chinese yuan (RMB) or 3.4 billion U.S. dollars ($) on Fortis. In the aftermath of the Fortis acquisition, Ping An had halted overseas expansion and focused on opportunities at home in mainland China.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/311133-PDF-ENG

Ford Motor Company: Strengthening the Dealer Network

V. Kasturi Rangan, Katharine Lee, and Marie Bell
Harvard Business School Case 511-132

The case describes a five-year effort (2006-2011) of distribution rationalization and consolidation at Ford. The financial crisis in the second half of 2008 forced GM and Chrysler into bankruptcy. Having completed the distribution overhaul work by 2011, its senior managers wondered how the transformed distribution channel would meet the needs of its new product strategy developed in response to the financial crisis.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/511132-PDF-ENG