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 8

Are 'brand immigrants' good for the image?

Brands that are selective should work hard to make their core consumers happy. Problems occur, however, when those users learn that a brand's downward extensions may be attracting people not viewed as desirable by the in-group. Silvia Bellezza and Anat Keinan explore the concepts of "brand tourists" and "brand immigrants" to explain when core users are likely to respond positively or negatively when new consumers start using the brand. The research is scheduled to be published in a forthcoming issue of Journal of Consumer Research.

When it's bad to grow fast

The April issue of Harvard Business Review includes work by Hanna Hałaburda and Felix Oberholzer-Gee showing limits to the get-big-fast strategy. "Companies trip up," according to the HBR summary, "when they try to attract large volumes of customers without understanding (1) the strength of mutual attraction among various customer groups and (2) the extent of asymmetric attraction among them." Read "The Limits of Scale: Companies That Get Big Fast Are Often Left Behind."

Reflecting on reflection

Business educators often teach executives to have a bias toward taking action, but is reflection getting short shrift? In the working paper Learning by Thinking: How Reflection Aids Performance, Giada Stefano, Francesca Gino, Gary Pisano, and Bradley Staats find learning is improved when accompanied by an attempt to synthesize, abstract, and articulate the key lessons taught by experience.

 

Publications

  • August 2013
  • Journal of Consumer Research

Brand Tourists: How Non-Core Users Enhance the Brand Image by Eliciting Pride

By: Bellezza, Silvia, and Anat Keinan

Abstract—This research examines how core consumers of selective brands react when non-core users obtain access to the brand. Contrary to the view that non-core users and downward brand extensions pose a threat to the brand, this work investigates the conditions under which these non-core users enhance rather than dilute the brand image. A distinction between two types of non-core users based on how they are perceived by current users of core products is introduced: "brand immigrants" who claim to be part of the in-group of core users of the brand and "brand tourists" who do not claim any membership status to the brand community. A series of studies shows that core consumers respond positively to non-core users when they are perceived as brand tourists. The brand tourism effect is mediated by core users' pride and moderated by brand patriotism and selectiveness of the brand.

  • August 2013
  • Harvard Business Review

The Limits of Scale: Companies That Get Big Fast Are Often Left Behind. Here's Why

By: Hałaburda, Hanna, and Felix Oberholzer-Gee

Abstract—The value of many products and services rises or falls with the number of customers using them; the fewer fax machines in use, the less important it is to have one. These network effects influence consumer decisions and affect companies' ability to compete. Strategists have developed some well-known rules for navigating business environments with network effects. "Move first" is one, and "get big fast" is another. In a study of dozens of companies, however, the authors found that quite often the conventional wisdom was dead wrong. And when the rules failed, the reason was always the same: Companies trip up when they try to attract large volumes of customers without understanding (1) the strength of mutual attraction among various customer groups and (2) the extent of asymmetric attraction among them. Looking at examples such as TripAdvisor, Wikipedia, and the New York Times, the authors offer strategies for competing in markets with network effects. New entrants should focus on customer groups that they are uniquely positioned to serve or appeal to the most attractive customers in a market. Incumbents pursuing growth strategies in adjacent markets or new geographies should consider how similar the needs of new customers are to those of existing customers. Offering complements also allows incumbents to reach additional customer groups.

Publisher's link: http://hbr.org/2014/04/the-limits-of-scale/ar/1

  • August 2013
  • MIT Sloan Management Review

The High Price of Customer Satisfaction

By: Keiningham, Timothy, Sunil Gupta, Lerzan Aksoy, and Alexander Buoye

Abstract—Managers often assume that improving customer satisfaction and financial performance go hand in hand. The reality, however, is much more complex.

Publisher's link: http://sloanreview.mit.edu/x/55314

  • August 2013
  • Journal of Monetary Economics

Income Inequality and Social Preferences for Redistribution and Compensation Differentials

By: Kerr, William R.

Abstract—In cross-sectional studies, countries with greater income inequality typically exhibit less support for government-led redistribution and greater acceptance of wage inequality (e.g., United States versus Western Europe). If individual nations evolve along this pattern, a vicious cycle could form with reduced social concern amplifying primal increases in inequality due to forces like skill-biased technical change. Exploring movements around these long-term levels, however, this study finds mixed evidence regarding the vicious cycle hypothesis. On one hand, larger compensation differentials are accepted as inequality grows. This growth in differentials is of a smaller magnitude than the actual increase in inequality, but it is nonetheless positive and substantial in size. Weighing against this, growth in inequality is met with greater support for government-led redistribution to the poor. These patterns suggest that short-run inequality shocks can be reinforced in the labor market but do not result in weaker political preferences for redistribution.

  • August 2013
  • Harvard Business Review

15 Rules for Negotiating a Job Offer

By: Malhotra, Deepak

Abstract—The author, a professor of negotiation at Harvard Business School, offers specific pieces of advice for job candidates: Don't underestimate the importance of likability. Help prospective employers understand why you deserve what you're requesting. Make it clear that they can get you. Understand the person across the table from you. Understand his or her constraints. Be prepared for tough questions. Focus on the questioner's intent, not on the question. Consider the whole deal. Negotiate multiple issues simultaneously, not serially. Don't negotiate just for the sake of negotiating (a pitfall for recent MBA graduates). Think through the timing of offers. Avoid, ignore, or downplay ultimatums. Remember that your interviewer isn't out to get you. Stay at the table and maintain a sense of perspective.

Publisher's link: http://hbr.org/2014/04/15-rules-for-negotiating-a-job-offer/ar/1

  • August 2013
  • Harvard Business Review

Can an 'Ethical' Bank Support Guns and Fracking?

By: Marquis, Christopher, and Juan Almandoz

Abstract—A case study is presented on business ethics and bank management. The situation facing the president of a community bank established to operate as a green business and to consider ethical issues of bank loans when it is considering an application for a large commercial loan by a firearms industry company in its community is examined.

Publisher's link: https://archive.harvardbusiness.org/cla/web/pl/product.seam?c=32094&i=32096&cs=80fcfaa8da53da1a3cdd0ea8f861eeed

  • August 2013
  • Journal of Finance

Is a VC Partnership Greater Than the Sum of Its Partners?

By: Rhodes-Kropf, Matthew, and Michael Ewens

Abstract—This paper investigates whether individual venture capitalists have repeatable investment skill and to what extent their skill is impacted by the VC firm where they work. We examine a unique dataset that tracks the performance of individual venture capitalists' investments across time and as they move between firms. We find evidence of skill and exit style differences even among venture partners investing at the same VC firm at the same time. Furthermore, our estimates suggest the partner's human capital is two to five times more important than the VC firm's organizational capital in explaining performance.

  • August 2013
  • foreignpolicy.com

Like a Boss: How Corporate Negotiators Would Handle Nuclear Talks with Iran

By: Sebenius, James K.

Abstract—While the Obama team deserves high marks for launching the interim talks, its approach doesn't sell the upside of a comprehensive deal persuasively enough to transform more Iranian skeptics into active supporters-a necessary condition for success if there is an acceptable deal at the next stage. To sway skeptics, I recommend a specific "campaign" to dramatize the value of a deal. Beyond wooing skeptics, a strategy to build a "winning coalition" behind a deal must thwart determined Iranian blockers who will act to prevent meaningful concessions. After six months of talks, there could easily be positive atmospherics but little real progress (as with the round that just ended on March 19, 2014). To avoid escalation, diplomats will likely plead for more time. Granting a six-month extension, an option already built into the current process, could easily become a pattern, turning some version of the interim deal into a de facto stopping point. Meanwhile, as Ali Salehi, head of Iran's nuclear agency, recently asserted, "The iceberg of sanctions is melting while our centrifuges are still working." To mitigate the risk of such "deal drift," the United States and its allies should set a realistic, hard deadline for reaching an acceptable but fairly narrow agreement (one denying Iran what Graham Allison calls an "exercisable nuclear option"). Credibility will be difficult since Iran has often ignored U.S. and allied "red lines." To boost its credibility-and to help win over its own domestic and allied skeptics-the administration should pre-negotiate a harsh new "contingent" sanctions package with Congress and work to ensure buy-in from U.S. allies. The contingent sanctions should avoid the many deal-killing provisions of the recently defeated Menendez-Kirk bill. But instead of signing the sanctions bill immediately, Obama should publicly and forcefully commit to signing it if there is no acceptable agreement by the end of a single six-month extension of the interim deal. While many worry that such contingent sanctions would sour the atmosphere and damage the prospects for the talks, much experience suggests that skillful negotiators can effectively manage both incentives and penalties.

Publisher's link: http://www.foreignpolicy.com/articles/2014/03/24/like_a_boss_nuclear_talks_iran

 

Working Papers

Sovereigns, Upstream Capital Flows and Global Imbalances

By: Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych

Abstract—We construct measures of net private and public capital flows for a large cross-section of developing countries considering both creditor and debtor side of the international debt transactions. Using these measures, we demonstrate that sovereign-to-sovereign transactions account for upstream capital flows and global imbalances. Specifically, we find i) international net private capital flows (inflows minus outflows of private capital) are positively correlated with countries' productivity growth, ii) net sovereign debt flows (government borrowing minus reserves) are negatively correlated with growth only if net public debt is financed by another sovereign, iii) net public debt financed by private creditors is positively correlated with growth, iv) public savings are strongly positively correlated with growth, whereas the correlation between private savings and growth is flat and statistically insignificant. These empirical facts contradict the conventional wisdom and constitute a challenge for the existing theories on upstream capital flows and global imbalances.

Download working paper: http://ssrn.com/abstract=1920472

Learning by Thinking: How Reflection Aids Performance

By: Di Stefano, Giada, Francesca Gino, Gary Pisano, and Bradley Staats

Abstract—Research on learning has primarily focused on the role of doing (experience) in fostering progress over time. In this paper, we propose that one of the critical components of learning is reflection, or the intentional attempt to synthesize, abstract, and articulate the key lessons taught by experience. Drawing on dual-process theory, we focus on the reflective dimension of the learning process and propose that learning can be augmented by deliberately focusing on thinking about what one has been doing. We test the resulting dual-process learning model experimentally, using a mixed-method design that combines two laboratory experiments with a field experiment conducted in a large business process outsourcing company in India. We find a performance differential when comparing learning-by-doing alone to learning-by-doing coupled with reflection. Further, we hypothesize and find that the effect of reflection on learning is mediated by greater perceived self-efficacy. Together, our results shed light on the role of reflection as a powerful mechanism behind learning.

Download working paper: http://ssrn.com/abstract=2414478

Information and Incentives in Online Affiliate Marketing

By: Edelman, Benjamin G., and Wesley Brandi

Abstract—We examine online affiliate marketing programs in which merchants oversee thousands of affiliates they have never met. Some merchants hire outside specialists to set and enforce policies for affiliates, while other merchants ask their ordinary marketing staff to perform these functions. For clear violations of applicable rules, we find that outside specialists are most effective at excluding the responsible affiliates, which we interpret as a benefit of specialization. However, in-house staff are more successful at identifying and excluding affiliates whose practices are viewed as "borderline" (albeit still contrary to merchants' interests), foregoing the efficiencies of specialization in favor of the better incentives of a company's staff. We consider the implications for marketing of online affiliate programs and for online marketing more generally.

Download working paper: http://www.benedelman.org/publications/affmgmt-2014-03-25.pdf

Price Coherence and Adverse Intermediation

By: Edelman, Benjamin, and Julian Wright

Abstract—Suppose an intermediary provides a benefit to buyers when they purchase from sellers using the intermediary's technology. We develop a model to show that the intermediary will want to restrict sellers from charging buyers more for transactions it intermediates. We show that this restriction can reduce consumer surplus and welfare, sometimes to such an extent that the existence of the intermediary can be harmful. Specifically, lower consumer surplus and welfare result from inflated retail prices, over-investment in providing benefits to buyers, and excessive adoption of the intermediaries' services. Competition among intermediaries intensifies these problems by increasing the magnitude of their effects and broadening the circumstances in which they arise. We show similar results arise when intermediaries provide matching benefits, namely recommendations of sellers to buy from. We discuss applications to travel reservation systems, payment card systems, marketplaces, rebate services, search engine advertising, and various types of brokers and agencies.

Download working paper: http://ssrn.com/abstract=2373671

Abstract—Applying a "co-search" algorithm to Internet traffic at the SEC's EDGAR website, we develop a novel method for identifying economically related peer firms. Our results show that firms appearing in chronologically adjacent searches by the same individual (Search Based Peers or SBPs) are fundamentally similar on multiple dimensions. In direct tests, SBPs dominate GICS6 industry peers in explaining cross-sectional variations in base firms' out-of-sample (a) stock returns, (b) valuation multiples, (c) growth rates, (d) R&D expenditures, (e) leverage, and (f) profitability ratios. We show that SBPs are not constrained by standard industry classification and are more dynamic, pliable, and concentrated. Our results highlight the potential of the collective wisdom of investors―extracted from co-search patterns―in addressing long-standing benchmarking problems in finance.

Download working paper: http://ssrn.com/abstract=2171497

Abstract—The November 2013 "interim" nuclear deal between Iran and the "P5+1"-the United States, Russia, China, Britain, France, and Germany-raises challenging questions. Will the initial deal function as a stepping stone toward a more comprehensive deal? Or will it drift into becoming a stopping point that leaves Iran dangerously close to nuclear weapons capability with the sanctions regime in decline? Or will it devolve into a slippery slope that would end up requiring a painful choice for key players between either acquiescing to a nuclear-capable Iran or attacking Iran's nuclear facilities? With the Iran and the P5+1 each splintered into contending factions, a successful stepping stone strategy requires converting enough "persuadable skeptics" on each side to forge a "winning coalition" on behalf of a more comprehensive nuclear deal. This supportive group must be strong enough to overcome the potent "blocking coalition" that will oppose virtually any larger, next-stage agreement. The best chance for the interim accord to become a stepping stone to a more valuable deal calls for a two-prong negotiating strategy with both value-enhancing and cost-imposing elements. The first prong of this strategy should strive to craft the most valuable possible next deal that credibly offers Iran a range of benefits, not limited to sanctions relief, that are greater and much more salient than those available from the interim agreement. The second prong should significantly worsen the consequences of failing to reach the next nuclear deal by a strong public U.S. Presidential commitment to sign a bill, prenegotiated with the Congress and P5+1 allies, imposing enhanced sanctions if negotiations toward an acceptable, but relatively narrow, agreement denying Iran an "exercisable nuclear option" do not succeed by the reasonable but firm deadline no later than twelve months from the start of the interim talks.

Download working paper: http://ssrn.com/abstract=2386291

 

Cases & Course Materials

  • Harvard Business School Case 314-031

StriveTogether: Reinventing the Local Education Ecosystem

StriveTogether aimed to improve education outcomes by coordinating the actions of diverse community stakeholders-nonprofit service providers, school districts, government, parents, businesses, and others. StriveTogether had an intense focus on collective impact-"the commitment of a group of important actors from different sectors to a common agenda for solving a specific social problem"-and the use of data to drive decision. In the case, managing director Jeff Edmondson is faced with two dilemmas: how to attract business engagement in the City Heights neighborhood of San Diego, California, and how to achieve greater results in the communities that had implemented the StriveTogether framework.

Purchase this case:
http://hbsp.harvard.edu/he-main/resources/documents/web-files/314031p2.pdf

  • Harvard Business School Case 714-488

Drivers of Value Capture

No abstract available.

Purchase this case:
http://hbr.org/product/drivers-of-value-capture/an/714488-PDF-ENG

  • Harvard Business School Case 714-487

Drivers of Value Creation

No abstract available.

Purchase this case:
http://hbr.org/search/714487-PDF-ENG

While the Philippines are located in the vicinity of many of the "Asian Tigers," its development has followed a unique path. The country suffered for years under a dictatorial political regime and protectionist economic policies. Remittances were the largest source of hard currency and the industrial sector was marked by significant concentration and rent seeking. Recent economic reforms have shaken up many sectors of the economy and stimulated rapid economic growth. Conglomerates, which account for a substantial portion of large, organized business activity, need to decide how to adapt to this new environment. Ayala Corporation is one of the largest and most important conglomerates in the Philippines and has been controlled by the Zobel de Ayala family for seven generations. Company leadership must decide whether to alter their strategy in the wake of an election that could dramatically transform the political and business climate of the Philippines in a positive way.

Purchase this case:
http://hbr.org/product/ayala-corporation-the-philippines-asset-allocation-in-a-growing-economy-a/an/713093-PDF-ENG