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.

January 4

Racial Colorblindness

In managing employees, many organizations deal with the subject of race by pretending it doesn't exist, deciding that racial differences in the staff should not—and therefore don't— matter. But is that an effective way to manage diversity? Evan P. Apfelbaum, Michael I. Norton, and Samuel R. Sommers address that question in a new paper, "Racial Colorblindness: Emergence, Practice, and Implications," to be published in the journal Current Directions in Psychological Science.

Backfiring Big Box Regulation

In order to protect local independent businesses, many governments actively curb the entry of retail superstores like Wal-Mart. But such regulations may end up actually hurting small business owners, writes Raffaella Sadun in a new working paper, Does Planning Regulation Protect Independent Retailers? In studying a large group of independent retailers in the United Kingdom, she found that 17% of their employment decline between 1998 and 2004 could be attributed to the regulatory reform that was meant to help them. One reason: Big-box retailers get around the regulations by opening small retail stores instead. While giant superstores generally are located on the outskirts of a town, these scaled-down shops are often located downtown, creating more direct competition against the independent stores.

Lehman and the Repo Market

A new case examines the accounting practices that Lehman Brothers undertook before its spectacular collapse in 2008—homing in on a technique in which the financial services firm used repurchasing deals in a way that allowed short-term loans to be classified as sales. Read Lehman Brothers and Repo 105 by Annette Mikes, Gwen Yu, and Dominique Hamel.

 

Publications

Cases about Redefining Global Strategy

An abstract is unavailable at this time.

Publisher's Link: http://hbr.org/product/cases-about-redefining-global-strategy/an/2722-HBK-ENG

Racial Colorblindness: Emergence, Practice, and Implications

Abstract

We examine the pervasive endorsement of racial colorblindness-the belief that racial group membership should not be taken into account or even noticed-as a strategy for managing diversity and intergroup relations. Despite research demonstrating that race is perceived automatically (and thus, the seeming improbability of actual colorblindness), the colorblind approach has become increasingly apparent in a variety of important domains, from education and business to law and societal discourse. An emerging research literature has revealed the many ways in which colorblindness shapes individual, group, and institutional efforts to handle issues of diversity. We offer an integrative assessment of this work, highlighting recent psychological investigations that explore the emergence, practice, and implications of colorblindness. We conclude by discussing alternative strategies for managing diversity, underscoring the importance of an approach that simultaneously accommodates the concerns of whites and minorities.

Read the paper: http://www.people.hbs.edu/mnorton/apfelbaum%20norton%20sommers.pdf

Leveraging Tribal Sovereignty for Economic Opportunity: A Strategic Negotiations Perspective

Abstract

Indian tribes and U.S. states often find themselves at the bargaining table, often negotiating "compacts" to govern gaming operations on tribal lands. The operational success of the Pequot gaming operation in Connecticut, Foxwoods, and the substantial revenue shared with Connecticut have become almost mythical in nature, with other states often misunderstanding the lessons of the Foxwoods experience. The real story behind the Pequot gaming compact, however, is one of strategic negotiation and the leveraging of tribal sovereignty into economic opportunity. By examining the sovereign nature of tribal governments, the history of tribal sovereignty, the origins of Indian gaming, the legal framework that governs tribal gaming activities, as well as an analytic approach to negotiations, this paper explains the Foxwoods deal and its implications for tribal-state compacting in the face of changing circumstances, both within and outside of the gaming context.

Market Interest in Nonfinancial Information

Abstract

Market interest in nonfinancial (e.g., Environmental, Social, and Governance [ESG]) information, including data produced by the Carbon Disclosure Project (CDP), is growing. Using data from Bloomberg we analyze this interest from a variety of different perspectives, and in doing so are able to provide a level of granularity about market interest in nonfinancial information that has not yet been provided.

Globalization and Beauty: A Historical and Firm Perspective

Abstract

This paper uses the beauty industry to explore the impact of globalization over the very long run. As the first wave of modern globalization started in the nineteenth century, there began a massive homogenization of beauty ideals around the world that has, to some extent, continued until the present day. This had enormous societal and cultural consequences. Business enterprises were at the heart of this process. The paper explores how entrepreneurs and firms translated societal values into brands, globalized them, and changed societal perceptions of beauty as a result. It also shows the limitations of the homogenization achieved by firms even at its high point, before making the case that contemporary globalization is working to facilitate greater diversity in beauty ideals again.

Re-Developing Leaders: The Harvard Advanced Leadership Experiment in Even Higher Education

An abstract is unavailable at this time.

Book: http://www.sagepub.com/books/Book235126

Competitive Strategy for Open Source Software

Abstract

Commercial open source software (COSS) products-privately developed software based on publicly available source code-represent a rapidly growing, multibillion-dollar market. A unique aspect of competition in the COSS market is that many open source licenses require firms to make certain enhancements public, creating an incentive for firms to free ride on the contributions of others. This practice raises a number of puzzling issues. First, why should a firm further develop a product if competitors can freely appropriate these contributions? Second, how does a market based on free riding produce high-quality products? Third, from a public policy perspective, does the mandatory sharing of enhancements raise or lower consumer surplus and industry profits? We develop a two-sided model of competition between COSS firms to address these issues. Our model consists of (1) two firms competing in a vertically differentiated market in which product quality is a mix of public and private components and (2) a market for developers that firms hire after observing signals of their contributions to open source. We demonstrate that free-riding behavior is supported in equilibrium, that a mandatory sharing setting can result in high-quality products, and that free riding can actually increase profits and consumer surplus.

Read the paper: http://www.people.hbs.edu/vkumar/Papers/COSS.pdf

Changing Identity, Changing Language

Abstract

Environmental jolts and shifting membership challenge a group's efficacy and survival. Group identity is critical for a shared interpretation of and response to these challenges, but external and internal changes may require corresponding changes in a group's core identity. In a qualitative study of longshoremen in San Pedro, California, we observe an evolution in group identity as we track communication spoken and printed in the hiring halls, on the docks, and during casual social interactions. The emphasis in the shared language gradually shifts from safety and solidarity to safety, collaboration, and economic power. The newly developed language supports and shapes the longshoremen's identity and provides an interpretive guide for how to react to and benefit from disruptive external events.

Publisher's Link: http://www.emeraldinsight.com/books.htm?issn=0882-6145&volume=28

Japanese Multinationals in Foreign Disputes: Do They Behave Differently and Does It Matter for Host Countries?

An abstract is unavailable at this time.

Publisher's Link: http://www.oup.com/us/catalog/general/subject/Law/InternationalArbitration/?view=usa&ci=9780199812356

 

Working Papers

The Dynamic Effects of Bundling as a Product Strategy

Abstract

Several key questions in bundling have not been empirically examined: Do consumers value bundles over and beyond their component products, indicating synergy? Is mixed bundling more effective than pure bundling or pure components? Does correlation in consumer valuations make bundling more or less effective? Does bundling serve as a complement or substitute to network effects? To address these questions, we develop a consumer-choice model from micro-foundations to capture the essentials of our setting, i.e. the handheld video game console market. In doing so, we provide a framework to understand the dynamic, long-term impacts of bundling on demand. We find that hardware sales diminish in the absence of bundling, and consumers who had previously purchased bundles may not always purchase pure consoles, even though consoles may be cheaper than bundles. The type of bundling chosen is critical to extracting value from consumers, with pure bundling performing significantly worse than both mixed bundling and pure components. We find that consumers perceive a negative synergy between the components of a bundle. Modeling the dynamic nature of durable goods purchases also helps us uncover a finding that contradicts prior static models: positive correlation between products enables bundling to be more effective than negative correlation.

Download the paper: http://www.hbs.edu/research/pdf/12-043.pdf

When Smaller Menus Are Better: Variability in Menu-Setting Ability

Abstract

Are large menus better than small menus? Recent literature argues that individuals' apparent preference for smaller menus can be explained by choosers' behavioral biases or informational limitations. These explanations imply that absent behavioral or informational effects, larger menus would be objectively better. However, in an important economic context-401(k) pension plans-we find that larger menus are objectively worse than smaller menus, as measured by the maximum Sharpe ratio achievable. We propose a model in which menu setters differ in their ability to pre-select the menu. We show that when the cost of increasing the menu size is sufficiently small, a lower-ability menu setter optimally offers more items in the menu than a higher-ability menu setter. Nevertheless, the menu optimally offered by a higher-ability menu setter remains superior. This results in a negative relation between menu size and menu quality: smaller menus are better than larger menus.

Download the paper: http://www.hbs.edu/research/pdf/11-086.pdf

Expectations, Network Effects and Platform Pricing

Abstract

In markets with network effects, users must form expectations about the total number of users who join a given platform. In this paper, we distinguish two ways in which rational expectations can be formed, which correspond to two different types of users-sophisticated and unsophisticated. Only sophisticated users adjust their expectations in response to platforms' price changes. We study the effect of the fraction of sophisticated users on platform profits. A monopoly platform's profits are always increasing in the fraction of sophisticated users. The profits of competing platforms in a market of fixed size are decreasing in the fraction of sophisticated users. When market expansion is introduced, the fraction of sophisticated users that maximizes competing platforms' profits may be positive and is strictly lower than 1. We also investigate the possibility of platforms investing in "educating" unsophisticated users. In a competitive environment, such education is a public good among platforms and therefore the equilibrium level is lower than the one that would maximize joint industry profits.

Download the paper: http://www.hbs.edu/research/pdf/12-045.pdf

From Single Deals to Negotiation Campaigns

Abstract

Negotiation scholars typically take the individual deal, or a few linked deals, as the unit of analysis. While analyzing one deal requires a familiar conceptual framework, doing the same for a broader "negotiation campaign" calls for a different focus and set of concepts: how to orchestrate a large number of subsidiary deals, often grouped into modular "fronts," in order to realize an ultimate "target agreement" with sufficient support to be sustainable. For example, generating the backing necessary from several organizational units for a proposed project to be approved may call for a small-scale "internal" negotiation campaign. A final cross-border merger agreement may represent the culmination of a massive negotiation campaign with multiple, related fronts: financial, shareholder, internal corporate, labor, supplier, political, and regulatory. Complex sales with long cycles and many influential parties as well as major diplomatic initiatives may call more for crafting negotiation campaigns than for doing solo deals. Analysis of negotiation campaigns builds on familiar concepts such as linkage and coalition building. In many cases, however, the parties relevant to a campaign as well as the fronts may not be obvious a priori and may represent choice variables rather than givens for the analysis. Beyond identifying and specifying parties and fronts, negotiation campaign analysis and design calls for assessing interdependencies among fronts, deciding on separation v. combination of fronts, parallel v. sequential tactical emphasis, as well as information revelation v. concealment at different stages of the campaign.

Download the paper: http://www.hbs.edu/research/pdf/12-046.pdf

What Makes the Bonding Stick? A Natural Experiment Involving the U.S. Supreme Court and Cross-Listed Firms

Abstract

Using a natural experiment to overcome the empirical challenges facing the debate over the bonding hypothesis, we analyze markets' reaction to a sudden radical change in the law governing U.S.-listed foreign firms. In March 2010, the U.S. Supreme Court signaled its intention to geographically limit the reach of the U.S. antifraud regime. The Court thus excluded the overwhelming majority of investors in U.S.-listed foreign firms from the protection of the U.S. civil liability regime and cast at least partial limitations on the SEC's regulatory authority. This event nonetheless was met with positive abnormal returns of U.S.-listed foreign firms in both home and U.S. markets. These abnormal returns are actually higher the greater the percentage of a firm's capital listed on non-U.S. exchanges but are unrelated to the corporate governance and legal environment in foreign issuers' home country. These results challenge the legal bonding hypothesis while suggesting that the U.S. regime of civil liability as currently designed may not have been seen as a source of economic value for outside investors.

Download the paper: http://www.hbs.edu/research/pdf/11-072.pdf

Does Planning Regulation Protect Independent Retailers?

Abstract

Entry regulations against big-boxes have been introduced in many countries to protect independent retailers. Analyzing a planning reform launched in the U.K. in the 1990s, I show that entry regulations may in fact accelerate the decline of independents by increasing the attractiveness of smaller in-town store formats for retail chains. The causal impact of planning regulation is estimated using variation in local political control across the U.K., which exogenously affects the ease of entry for big-boxes in this specific institutional framework. The analysis shows that up to 17% of the independents' employment decline between 1998 and 2004 can be attributed to the regulatory reform.

Download the paper: http://www.hbs.edu/research/pdf/12-044.pdf

A Reexamination of Tunneling and Business Groups: New Data and New Methods

Abstract

The corporate governance literature of the past decade has focused on identifying drivers of superior or deficient corporate governance. One of the most rigorous methodologies uses firms' reactions to industry shocks to characterize the quality of governance. We propose that this methodology can produce the wrong answer unless one takes into account the different ways in which firms compete (that is, their business strategy). Because macro-level shocks reverberate differently at the firm level depending on whether a firm has a cost structure that requires significant cost adjustment, the quality of governance can only be elucidated accurately by means of simultaneous analysis of firms' business strategy and their corporate governance. Only by acknowledging these differences in cost structure can one determine whether the fruits of a positive macro-level shock have been expropriated by insiders. Using the example of Indian firms, we show that an influential finding is reversed when we take these differences into account. We further argue that the conventional wisdom about tunneling and business groups will need to be reformulated in light of the data, methodology, and findings presented here.

Download the paper: http://www.hbs.edu/research/pdf/10-072.pdf

 

Cases & Course Materials

Vignette: Alternative Liquidity Options

G. Felda Hardymon, Josh Lerner, and Ann Leamon
Harvard Business School Case 812-070

The growth of companies that facilitate the sales of unregistered stock, such as that granted to employees of successful but long-private companies, has raised a number of questions among regulators, investors, and company founders. This brief vignette sketches out some of the benefits and drawbacks of alternative methods of liquidity.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/812070-PDF-ENG

Note on Neuromarketing

faculty names
Harvard Business School Note 512-031

This note provides some general perspective on the neuromarketing field, with a discussion of both current practices and future directions.

Purchase this note:
http://cb.hbsp.harvard.edu/cb/product/512031-PDF-ENG

Jody Leleck at Broad Acres (A)

Paul W. Marshall and Andrew Goldin
Harvard Business School Case 810-042

Jody Leleck has been appointed the principal of Broad Acres Middle School in Montgomery County, Maryland. The school is underperforming all other schools in the district, and she has been asked to improve the performance.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/810042-PDF-ENG

Jody Leleck at Broad Acres (B)

Paul W. Marshall and Andrew Goldin
Harvard Business School Supplement 810-043

Explores the results of Jody Leleck's efforts to turn around underperforming Broad Acres Middle School.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/810043-PDF-ENG

Lehman Brothers and Repo 105

Anette Mikes, Gwen Yu, and Dominique Hamel
Harvard Business School Case 112-050

The collapse of Lehman Brothers in 2008 was the largest bankruptcy in U.S. history. The case examines the economics of the off-balance sheet transactions Lehman undertook prior to the collapse and highlights the corporate governance challenges in situations where firms face capital market pressure and market downturns. In particular, the case examines the financial accounting, auditing, and internal management control practices around the Repo 105 transactions, which had a significant effect on the leverage position of the company. Based on the findings of the bankruptcy examiner's report, the case focuses on the role that management, external auditors, and the audit committee played in what amounted to a significant control failure.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/112050-PDF-ENG

Delta/Signal Corp

V. G. Narayanan, Lisa Brem, and Matthew Packard
Harvard Business School Case 112-048

This auto parts company has just ousted its longtime CEO and founder, and the new, professional CEO is badly in need of a coherent strategy, clear objectives and metrics, and initiatives that are aligned with the strategy and objectives. Will the balanced scorecard approach help his leadership team create an action plan that makes sense for the company's strategy? This case is designed to be used with the "Balanced Scorecard Simulation Game."

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/112048-PDF-ENG

Social Failures and Social Solutions

Mikołaj Jan Piskorski
Harvard Business School Module Note 712-440

An abstract is unavailable at this time.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/712440-PDF-ENG

Barack Obama and the Bush Tax Cuts (B)

Matthew Weinzierl and Jacob Kuipers
Harvard Business School Supplement 712-012

President Obama signs a major fiscal stimulus package and then must debate whether to extend the Bush tax cuts.

Purchase this supplement:
http://cb.hbsp.harvard.edu/cb/product/712012-PDF-ENG