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.

Jan. 31

The name game

In a recent Business Strategy Review, John Gourville and Elie Ofek join Marco Bertini to examine the extent to which a new product's name helps to determine its success. As it turns out, a rose by any other name might not smell as sweet. Read, "When the Name Is the Game."

Incentives to save

It's logical to assume that offering stellar interest rates is the best way to encourage people to start banking some of paycheck rather than spending it all in one place. But a new working paper shows that this may not be the case. In "Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device," Dina Pomeranz, Stephan Meier, and Felipe Kast show that peer pressure, in the form of text messages, is a more effective way to get people to start saving their money.

Squelching motivation

For the January issue of The McKinsey Quarterly, Teresa Amabile and Steven Kramer talk about lousy management practices. In "How Leaders Kill Meaning at Work," they explain that to really thwart enthusiasm, managers should signal low expectations for innovation; switch strategic direction frequently; and develop vague, unrealistically grandiose goals.

 

Publications

How Leaders Kill Meaning at Work

Abstract

Senior executives routinely undermine creativity, productivity, and commitment by damaging the inner work lives of their employees in four avoidable ways. This article is based on the analysis of hundreds of work diaries from professionals describing everyday events that involved high-level managers in their companies. The analysis uncovered four major types of actions that reduce meaningfulness in the work and, as a result, lead to more negative emotions, lower intrinsic motivation, and less favorable perceptions of the organization-with negative consequences for performance. These actions include signaling low expectations for innovation; switching strategic direction too frequently; miscoordination of organizational systems; and vague, unrealistically grandiose goals. The research also revealed ways in which top managers can avoid these traps.

Read the paper: http://www.mckinseyquarterly.com/Governance/Leadership/How_leaders_kill_meaning_at_work_2910

Fiduciary Duties and Equity-Debtholder Conflicts

Abstract

We use an important legal event as a natural experiment to examine the effect of management fiduciary duties on equity-debt conflicts. A 1991 Delaware bankruptcy ruling changed the nature of corporate directors' fiduciary duties in firms incorporated in that state. This change limited managers' incentives to take actions favoring equity over debt for firms in the vicinity of financial distress. We show that this ruling increased the likelihood of equity issues, increased investment, and reduced firm risk, consistent with a decrease in debt-equity conflicts of interest. The changes are isolated to firms relatively closer to default. The ruling was also followed by an increase in average leverage and a reduction in covenant use. Finally, we estimate the welfare implications of this change and find that firm values increased when the rules were introduced. We conclude that managerial fiduciary duties affect equity-bondholder conflicts in a way that is economically important, has impact on ex ante capital structure choices, and affects welfare.

Read the paper: http://www.hbs.edu/research/facpubs/workingpapers/papers0910.html#wp10-070

When the Name Is the Game

Abstract

In Romeo and Juliet, the fair maiden asks, "What's in a name?" When it comes to marketing next-generation products for the global marketplace, we have done extensive research and found that names can play an enormous role in a product's success.

Teams Have Changed: Catching Up to the Future

Abstract

Modern global trends are changing the face of teams. But we believe that much of today's teams' research focuses us on the present and the past while barely acknowledging the future. Much more radical changes exist in what is already happening to teams and what is ahead. We enjoin our scholarly colleagues to refocus radically on truly modern phenomena, on anticipating the future, and on altering our theorizing and methods accordingly, or we will never catch up.

Marketing Complex Financial Products in Emerging Markets: Evidence from Rainfall Insurance in India

Abstract

Recent financial liberalization in emerging economies has led to the rapid introduction of new financial products. Lack of experience with financial products, low levels of education, and low financial literacy may slow adoption of these products. This article reports on a field experiment that offered an innovative new financial product, rainfall insurance, to 600 small-scale farmers in India. A customized financial literacy and insurance education module communicating the need for personal financial management and the usefulness of formal hedging of agricultural production risks was offered to randomly selected farmers in Gujarat, India. The authors evaluate the effect of the financial literacy training and three marketing treatments using a randomized controlled trial. Financial education has a positive and significant effect on rainfall insurance adoption, increasing take-up from 8% to 16%. Only one marketing intervention, the money-back guarantee, has a consistent and large effect on farmers' purchase decisions. This guarantee, comparable to a price reduction of approximately 40%, increases demand by seven percentage points.

Consumer Response to Versioning: How Brands' Production Methods Affect Perceptions of Unfairness

Abstract

Marketers often extend product lines by offering limited-capability models that are created by removing or degrading features in existing models. This production method, called versioning, has been lauded because of its ability to increase both consumer and firm welfare. According to rational utility models, consumers weigh benefits relative to their costs in evaluating a product. So the production method should not be relevant. Anecdotal evidence suggests otherwise. Six studies show how the production method of versioning may be perceived as unfair and unethical and lead to decreased purchase intentions for the brand. Building on prior work in fairness, the studies show that this effect is driven by violations of norms and the perceived similarity between the inferior, degraded version of a product and the full-featured model offered by the brand.

Fundamental Data Anomalies

An abstract is unavailable at this time.

Publisher's Link: http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470905905,descCd-tableOfContents.html

Managing Conflict

An abstract is unavailable at this time.

Publisher's Link: http://www.oup.com/us/catalog/general/subject/Economics/Developmental/Regional/?view=usa&ci=9780198075028

Top Executives Need Feedback: Here's How They Can Get It

Abstract

As executives become more senior, they are less likely to receive constructive feedback on their performance or their strategy. To get it, they should call on their junior colleagues. The problem: subordinates don't want to offend the boss. Therefore, as executives become more senior, they tend to get less feedback. Why it matters: over time, senior leaders can become confused about their development needs and isolated from criticism they should hear about themselves and their strategies. What to do about it: cultivate a network of junior coaches who are willing to tell you the things you don't want to hear. And seek input on key strategic decisions by empowering junior colleagues to look at your business with a "clean sheet of paper."

Who Is Governing Whom? Executives, Governance, and the Structure of Generosity in Large U.S. Firms

Abstract

We examine how organizational structure influences strategies over which corporate leaders have significant discretion. Corporate philanthropy is our setting to study how a differentiated structural element-the corporate foundation-constrains the influence of individual senior managers and directors on corporate strategy. Our analysis of Fortune 500 firms from 1996 to 2006 shows that leader characteristics at both the senior management and director levels affect corporate philanthropic contributions. We also find that organizational structure constrains the philanthropic influence of board members but not of senior managers, a result that is contrary to what existing theory would predict. We discuss how these findings advance understanding of how organizational structure and corporate leadership interact and of how organizations can more effectively realize the strategic value of corporate social responsibility activities.

A Brief History of Risk Management Policy

An abstract is unavailable at this time.

Publisher's Link: http://www.oup.com/us/catalog/general/subject/Politics/AmericanPolitics/?view=usa&ci=9780199781911

An fMRI Investigation of Racial Paralysis

Abstract

We explore the existence and underlying neural mechanism of a new norm endorsed by both black and white Americans for managing interracial interactions: "racial paralysis," the tendency to opt out of decisions involving members of different races. We show that people are more willing to make choices-Who is more intelligent? Who is more polite?-between two white individuals (same-race decisions) than between a white and a black individual (cross-race decisions), a tendency that was enhanced when judgments involved traits related to black stereotypes. We use fMRI to examine the mechanisms underlying racial paralysis, revealing greater recruitment of brain regions implicated in socially appropriate behavior (VMPFC), conflict detection (ACC), deliberative processing (DLPFC), and inhibition (VLPFC). We discuss the impact of racial paralysis on the quality of interracial relations.

Read the paper: http://www.people.hbs.edu/mnorton/norton mason vandello biga dyer.pdf

Toward a Three-Tier Market for U.S. Home Mortgages

An abstract is unavailable at this time.

Read the paper: http://www.brookings.edu/~/media/Files/rc/papers/2011/0211_home_mortgages_pozen/0211_home_mortgages_pozen.pdf

Most Likely to Succeed: Leadership in the Industry

Abstract

What is the critical factor for success in the U.S. mutual fund industry? Is it top-ranked investment performance, innovative products, or pervasive distribution? In our view, it is none of these factors, despite their obvious importance. Instead, the best predictors of success in the U.S. fund business are the focus and organization of the fund sponsor. We believe that the most successful managers over the next decade will be organizations with two characteristics: dedication primarily to asset management and control by investment professionals.

Asset Allocation by Institutional Investors after the Recent Financial Crisis

An abstract is unavailable at this time.

Publisher's Link: http://www.brookings.edu/press/Books/2011/growingold.aspx

Read the paper: https://www.mfs.com/wps/FileServerServlet?servletCommand=serveUnprotectedFileAsset&fileAssetPath=/files/documents/news/mfse_pznaa_wp.pdf

Marketing and Public Policy: Transformative Research in Developing Markets

Abstract

Developing markets are a challenge for researchers who wish to study them and for the governments, business leaders, and citizens striving to improve life quality in them. The limitations of the dominant development paradigm coupled with the need to focus on consumers provide tremendous opportunities to engage in truly transformative research. Toward this outcome, several interactive forces must be understood and addressed during research design, management, and implementation. The purpose of this essay is to provide a synthesis: a framework in the form of a conceptual model, with practical applications for transformative research in developing markets, and ultimately with a broader objective to stimulate new conceptualizations, research, and best practices to transform consumer well-being.

Three Cheers for Teaching Distributive Bargaining

Abstract

Back in the 1990s, business school professors at an Academy of Management conference debated the propriety of teaching distributive bargaining to their students. The particulars of that exchange are lost in the mists of time, but at the end of the session, a straw poll apparently was taken. A huge majority of the attendees disapproved of exposing their impressionable pupils to the reality that in some negotiations, more for one party means less for the other. I gather the consensus view rested on the notion that distributive bargaining is brutish, perhaps even immoral. Perhaps negotiation teachers wanted to see themselves as surrogate peacemakers and problem solvers, bringers of value-creating light to the world through the future of good works of their charges. They certainly didn't want to see themselves as pit bull trainers.

 

Working Papers

Relational Contracts and Organizational Capabilities

Abstract

A large literature identifies unique organizational capabilities as a potent source of competitive advantage, yet our knowledge of why capabilities fail to diffuse more rapidly-particularly in situations in which competitors apparently have strong incentives to adopt them and a well-developed understanding of how they work-remains incomplete. In this paper we suggest that competitively significant capabilities often rest on managerial practices that in turn rely on relational contracts (i.e., informal agreements sustained by the shadow of the future). We argue that one of the reasons these practices may be difficult to copy is that effective relational contracts must solve the twin problems of credibility and clarity, and that while credibility might in principle be instantly acquired, clarity may take time to develop and may interact with credibility in complex ways, so that relational contracts may often be difficult to build.

Download the paper: http://www.hbs.edu/research/pdf/12-061.pdf

Under-Savers Anonymous: Evidence on Self-Help Groups and Peer Pressure as a Savings Commitment Device

Abstract

While commitment devices such as defaults and direct deposits from wages have been found to be highly effective to increase savings, they are unavailable to the millions of people worldwide who do not have a formal wage bill. Self-help peer groups are an alternative commitment device that is widespread and highly accessible, but there is little empirical evidence evaluating their effectiveness. We conduct two randomized field experiments among low-income micro-entrepreneurs in Chile. The first experiment finds that self-help peer groups are very potent at increasing savings. In contrast, a more classical measure, a substantially increased interest rate, has no effect on the vast majority of participants. A second experiment is designed to unbundle the key elements of peer groups as a commitment device through the use of regular text messages. It finds that surprisingly, actual meetings and peer pressure do not seem to be crucial in making self-help peer groups an effective tool to encourage savings.

Download the paper: http://www.hbs.edu/research/pdf/12-060.pdf

De Gustibus non est Taxandum: Theory and Evidence on Preference Heterogeneity and Redistribution

Abstract

Preferences over consumption and leisure play no role in the standard optimal tax model, which attributes all variation in earnings to differences in income-earning ability. We show how to incorporate these preferences, which like ability are publicly unobservable, into the standard model in a tractable way. In this more general model, the policy designer must guess at the relative importance of ability and preferences in explaining variation in earnings. We show that such preferences could, in principle, increase or decrease optimal redistribution. In the most plausible specifications of the model, however, the result is clear: greater variation in preferences lowers the optimal extent of redistribution. To generate more redistribution than in standard results, one must assume that the desire for income is inversely related to income earned. This result holds even when the conventional model accurately describes the average individual, and it suggests one potential resolution to the puzzle of why observed redistribution is in some cases weaker than conventional theory would suggest. We then establish a new empirical finding that confirms this model's central policy prediction across developed countries and the U.S. In countries and states with more heterogeneous tastes for consumption relative to leisure, redistribution is statistically significantly lower.

Download the paper: http://www.hbs.edu/research/pdf/12-063.pdf

Team Scaffolds: How Minimal In-Group Structures Support Fast-Paced Teaming

Abstract

Across many industries, particularly in health care delivery, interdependent work is performed under conditions that make bounded stable teams infeasible, creating a need to understand factors that foster teaming in the absence of team stability. Teaming refers to coordination and mutual adjustment that occur during episodes of interdependent work. The present research investigates teaming in the high-stakes, fast-paced setting of a hospital emergency room and focuses on the effects of a new organizational structure, which we call a team scaffold, on teaming effectiveness and performance outcomes. Using a hybrid research design that adapts and blends quantitative network methods with qualitative interview and observational data, we examine whether and how team scaffolds facilitate teaming in a dynamic, knowledge-intensive work environment. Although team scaffolds were implemented with little or no membership stability, their introduction triggered significant changes in teaming networks and behaviors in ways that improved operational performance.

Download the paper: http://www.hbs.edu/research/pdf/12-062.pdf

 

Cases & Course Materials

Freelancers Union

Michel Anteby and Erin McFee
Harvard Business School Case 412-056

Sara Horowitz faces a major strategic decision. Founder and CEO of the Freelancers Union, Horowitz has worked tirelessly to operationalize her new mutualist ideals, which comprise collective strength, independence, and shared protections. In 2008, she plans to move the organization into the health insurance industry in an effort to support a multi-generational outlook for the well-being of the union's members. Over the past 17 years, she has worked to create a culture of innovative thinking and member-oriented service. Horowitz sees a more active role in managing the health care of members as the logical next step. As objections from member representatives mount, she and her team must decide how to proceed.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/412056-PDF-ENG

Quadriserv and the Short Selling Market

Lauren H. Cohen and Christopher Malloy
Harvard Business School Case 212-021

Ten years into Quadriserv's life, Greg DePetris and his company were at a crossroads. Perhaps more so than any of Greg's previous ventures, Quadriserv represented a move into an established marketplace with strong and entrenched incumbents. Greg had a tested record of startups in the trading and financial sectors, but the difference in this case was that Quadriserv would be taking on some of the oldest and most venerable firms in U.S. finance. Quadriserv's goal was a bold one: to revolutionize the equity securities lending market. While the potential payoff was large, the downside risk was not lost on Greg and the firm's other principals. Further, the current moment represented an important decision point for the firm.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/212021-PDF-ENG

Hungary: Economic Crisis and a Shift to the Right

Rafael M. Di Tella, Matthew C. Weinzierl, and Jacob Kuipers
Harvard Business School Case 711-051

An abstract is unavailable at this time.

Purchase this case:
http://cb.hbsp.harvard.edu/cb/product/711051-PDF-ENG