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 8

Learning how to notice

The first step to solving ethical problems is noticing that they exist in the first place. Unfortunately, many managers possess underdeveloped noticing skills. Fortunately, Max Bazerman offers some great tips in the article "Becoming a First-Class Noticer: How to Spot and Prevent Ethical Failures in Your Organization," which appears in the current issue of Harvard Business Review.

Analyzing hedge fund activism

Sometimes a hedge fund buys up a large stake in a company with the primary goal of gaining a seat on the company's board and, subsequently, effecting major change. A new working paper examines the causes and effects of hedge fund activism, using a sample of nearly 2,000 activist events between 2004 and 2012. Read "Activist Directors: Determinants and Consequences" by Ian D. Gow, Sa-Pyung Sean Shin, and Suraj Srinivasan.

Globalizing Harley-Davidson

In the case "Harley-Davidson in India," Krishna Palepu and David Lane examine the American motorcycle company's globalization efforts. The case focuses on how the firm's CEO and India country manager deal with the opportunities and challenges of entering the Indian market.

 

Publications

  • 2014
  • AMACOM

Own Your Future: How to Think Like an Entrepreneur and Thrive in an Unpredictable Economy

By: Brown, Paul B., Charles F. Kiefer, and Leonard A. Schlesinger

Abstract—It used to be that if you studied and worked hard, you could be assured of an extremely satisfying career. But in a world of constant layoffs and dying industries, it has become increasingly difficult to "plan" your way to success. So what is the solution? Well, when it comes to dealing with uncertainty, nobody handles it better than successful entrepreneurs. That's why you want to take the same approach they do! Based on extensive research and interviews, Own Your Future shows how to apply the simple model they use-Act. Learn. Build. Repeat-to reinvent the way you maneuver in an unpredictable job market. Here's how it works. Instead of picturing your perfect career and working backwards, simply begin with the direction you want to go and take a small step. Thinking alone will never change your life-you must ACT. Then evaluate the lessons you learn from that first step, build on them, and take another step in your desired direction. Repeat this process until you have achieved your goal. When you consider that your job-perhaps even your industry-may disappear, you have no choice but to take control. Filled with stories of professionals of all kinds who have profited from this proactive approach, Own Your Future gives you the tools you need to succeed-no matter what comes your way.

Publisher's link: http://www.amacombooks.org/book.cfm?isbn=9780814434093

  • Forthcoming
  • Journal of Public Economics

No Margin, No Mission? A Field Experiment on Incentives for Public Services Delivery.

By: Ashraf, Nava, Oriana Bandiera, and Kelsey Jack

Abstract—A substantial body of research investigates the effect of pay for performance in firms, yet less is known about the effect of non-financial rewards, especially in organizations that hire individuals to perform tasks with positive social spillovers. We conduct a field experiment in which agents recruited by a public health organization to sell condoms are randomly allocated to four groups. Agents in the control group are hired as volunteers, whereas agents in the three treatment groups receive, respectively, a small monetary margin on each pack sold, a large margin, and a non-financial reward. The analysis yields three main findings. First, non-financial rewards are more effective at eliciting effort than either financial rewards or the volunteer contract and are also the most cost-effective of the four schemes. Second, non-financial rewards leverage intrinsic motivation and, contrary to existing laboratory evidence, financial incentives do not appear to crowd it out. Third, the responses to both types of incentives are stronger when their relative value is higher. Indeed, financial rewards are effective at motivating the poorest agents, and non-financial rewards are more effective when the peer group is larger. Overall, the findings demonstrate the power of non-financial rewards to motivate agents in settings where there are limits to the use of financial incentives.

Publisher's link: http://www.people.hbs.edu/nashraf/NoMarginNoMission_JPubE.pdf

  • July-August 2014
  • Harvard Business Review

Unlock the Mysteries of Your Customer Relationships

By: Avery, Jill, Susan Fournier, and John Wittenbraker

Abstract—Consumers have always had relationships with brands, but sophisticated tools for analyzing customer data are finally allowing marketing organizations to personalize and manage those relationships. With this new power comes a new challenge: people now expect companies to understand what type of relationships they want and to respond appropriately-they want firms to hold up their end of the bargain. Unfortunately, many brands don't meet those expectations.

Publisher's link: http://hbr.org/2014/07/unlock-the-mysteries-of-your-customer-relationships/ar/1

Abstract—We'd like to think that no smart, upstanding manager would ever overlook or turn a blind eye to threats or wrongdoing that ultimately imperil his or her business. Yet it happens all the time. We fall prey to obstacles that obscure or drown out important signals that things are amiss. Becoming a "first-class noticer," says Max Bazerman, requires conscious effort to fight ambiguity, motivated blindness, conflicts of interest, the slippery slope, and efforts of others to mislead us. As a manager, you can develop your noticing skills by acknowledging responsibility when things go wrong rather than blaming external forces beyond your control. Bazerman also advises taking an outsider's view to challenge the status quo. Given the string of ethical failures of corporations around the world in recent years-from BP to GM to JPMorgan Chase-it's clear that leaders not only need to act more responsibly themselves, but also must develop keen noticing skills in their employees and across their organizations.

Publisher's link: http://hbr.org/2014/07/becoming-a-first-class-noticer/ar/1

  • July-August 2014
  • Harvard Business Review

How 'Brand Tourists' Can Grow Sales

By: Bellezza, Silvia, and Anat Keinan

Abstract—The article discusses how exclusive brands can increase their sales by moving "downmarket" without diminishing their prestige or alienating existing customers. The authors suggest various ways to cater to new, non-core customers in a way that differentiates the newcomers from a brand's core clientele. Examples are cited for apparel-maker Lululemon, fashion label Prada, and jeweler Bulgari.

Publisher's link: http://hbr.org/2014/07/how-brand-tourists-can-grow-sales/ar/1

  • Forthcoming
  • Journal of Marketing Research (JMR)

Risk, 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.

Publisher's link: http://www.benedelman.org/publications/affmgmt-2014-06-21.pdf

  • July-August 2014
  • Harvard Business Review

How the Other Fukushima Plant Survived

By: Gulati, Ranjay, Charles Casto, and Charlotte Krontiris

Abstract—In March 2011, Japan's Fukushima Daiichi nuclear power plant was devastated by three reactor explosions and two core meltdowns in the days following a 9.0 earthquake and a tsunami that produced waves as high as 17 meters. The world is familiar with Daiichi's fate; less well known is the crisis at its sister plant, Daini, about 10 kilometers to the south. As a result of nature's onslaught, three of Daini's four reactors lacked sufficient power to achieve cooldown. To prevent the disaster experienced up north, the site superintendent, Naohiro Masuda, and his team had to connect them to the plant's surviving power sources. In a volatile environment, Masuda and Daini's hundreds of employees responded to each unexpected event in turn. Luck played a part, but so did smart leadership and sensemaking. Until the last reactor went into cold shutdown, Masuda's team took nothing for granted. With each new problem they encountered, it recalibrated, iteratively creating continuity and restoring order. Daini survived the crisis without an explosion or a meltdown.

Publisher's link: http://hbr.org/2014/07/how-the-other-fukushima-plant-survived/ar/1

  • July-August 2014
  • Harvard Business Review

The Crisis in Retirement Planning

By: Merton, Robert C.

Abstract—Corporate America began to really take notice of the looming retirement crisis in the wake of the dot-com crash, when companies in major industries went bankrupt in large part because of their inability to meet their pension obligations. The result was an acceleration of America's shift away from employer-sponsored pension plans toward defined-contribution (DC) plans-epitomized by the ubiquitous 401(k)-which transfer the investment risk from the company to the employee. With that transfer has come a dangerous shift in investment focus, argues Nobel Laureate Robert C. Merton. Traditional pension plans were conceived and managed to provide members with a guaranteed income. And because that objective filtered right through the scheme, members thought of their benefits in those terms. Ask a member what her pension is worth and she'll reply with an income figure: "two-thirds of my final salary," for example. Most DC schemes, however, are designed and managed as investment accounts with the goal of accumulating the largest possible pot of savings. Communication with savers is framed entirely in terms of assets and returns. Ask a saver what his 401(k) is worth and you'll hear a cash amount and perhaps a lament to the value lost in the financial crisis. The trouble is that investment value and asset volatility are simply the wrong measures if your goal is to secure a particular future income. In this article, Merton explains a liability-driven investment strategy whose aim is to improve the probability of achieving a desired retirement income rather than to maximize the capital value of the savings.

Publisher's link: http://hbr.org/2014/07/the-crisis-in-retirement-planning/ar/1

  • July-August 2014
  • Harvard Business Review

Sustainability in the Boardroom: Lessons from Nike's Playbook

By: Paine, Lynn S.

Abstract—One surprising role of Nike's corporate responsibility committee is to provide support for innovation. More and more companies recognize the importance of corporate responsibility to their long-term success-and yet the matter gets short shrift in most boardrooms, consistently ranking at the bottom of some two dozen possible priorities. Many years ago labor conditions in Asian contract factories prompted Nike board member Jill Ker Conway to lobby for a board-level corporate responsibility committee, which the company created in 2001. In the years since, the committee has steadily broadened its purview, now advising on a broad range of issues including innovation and acquisitions in addition to labor practices and resource sustainability. A close examination of Nike's experience has led the author to conclude that a dedicated board-level committee of this sort could be a valuable addition to many if not most companies in at least five ways: as a source of knowledge and expertise, as a sounding board and constructive critic, as a driver of accountability, as a stimulus for innovation, and as a resource for the full board. In an accompanying interview with Paine, Conway discusses the committee's creation and provides an insider's perspective on what has made it so effective.

Publisher's link: http://hbr.org/2014/07/sustainability-in-the-boardroom/ar/1

 

Working Papers

Modularity and Intellectual Property Protection

By: Baldwin, Carliss Y., and Joachim Henkel

Abstract—Modularity is a means of partitioning technical knowledge about a product or process. When state-sanctioned intellectual property (IP) rights are ineffective or costly to enforce, modularity can be used to hide information and thus protect IP. We investigate the impact of modularity on IP protection by formally modeling the threat of expropriation by agents. The principal has three options to address this threat: trust, licensing, and paying agents to stay loyal. We show how the principal can influence the value of these options by modularizing the system and by hiring clans of agents, thus exploiting relationships among them. Extensions address screening and signaling in hiring, the effects of an imperfect legal system, and social norms of fairness. We illustrate our arguments with examples from practice.

Download working paper: http://ssrn.com/abstract=2378558

How Do Customers Respond to Increased Service Quality Competition?

By: Buell, Ryan W., Dennis Campbell, and Frances X. Frei

Abstract—When does increased service quality competition lead to customer defection, and which customers are most likely to defect? Our empirical analysis of 82,235 customers exploits the varying competitive dynamics in 644 geographically isolated markets in which a nationwide retail bank conducted business over a five-year period. We find that customers defect at a higher rate from the incumbent following increased service quality (price) competition only when the incumbent offers high (low) quality service relative to existing competitors in a local market. We provide evidence that these results are due to a sorting effect, whereby firms trade-off service quality and price, and in turn, the incumbent attracts service (price) sensitive customers in markets where it has supplied relatively high (low) levels of service quality in the past. Furthermore, we show that it is the high quality incumbent's most profitable customers who are the most attracted by superior quality alternatives. Our results appear to have long-run implications whereby sustaining a high level of service quality is associated with the incumbent attracting and retaining more profitable customers over time.

Download working paper: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1759545

When 3+1>4: Gift Structure and Reciprocity in the Field

By: Gilchrist, Duncan, Michael Luca, and Deepak Malhotra

Abstract—Do higher wages elicit reciprocity and hence higher effort? In a field experiment with 266 employees, we find that paying above-market wages, per se, does not have an effect on effort relative to paying market wages. However, structuring a portion of the wage as a clear and unexpected gift (by offering a raise with no further conditions after the employee has accepted the contract-with no future employment) does lead to higher effort for the duration of the job. Targeted gifts are more efficient than hiring more workers. However, the mechanism makes this unlikely to explain persistent above-market wages.

Download working paper: http://people.hbs.edu/mluca/Papers%20on%20RIS/oDesk.pdf

Activist Directors: Determinants and Consequences

By: Gow, Ian D., Sa-Pyung Sean Shin, and Suraj Srinivasan

Abstract—This paper examines the determinants and consequences of hedge fund activism with a focus on activist directors, i.e., those directors appointed in response to demands by activists. Using a sample of 1,969 activism events over the period 2004-2012, we identify 824 activist directors. We find that activists are more likely to gain board seats at smaller firms and those with weaker stock price performance. Activists remain as shareholders longer when they have board seats, with holding periods consistent with conventional notions of "long-term" institutional investors. As in prior research, we find positive announcement-period returns of around 4% to 5% when a firm is targeted by activists and a 2% increase in return on assets over the subsequent one to five years. We find that activist directors are associated with significant strategic and operational actions by firms. We find evidence of increased divestiture, decreased acquisition activity, higher probability of being acquired, lower cash balances, higher payout, greater leverage, higher CEO turnover, lower CEO compensation, and reduced investment. With the exception of the probability of being acquired, these estimated effects are generally greater when activists obtain board representation, consistent with board representation being an important mechanism for bringing about the kinds of changes that activists often demand.

Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=14-120.pdf

 

Cases & Course Materials

  • Harvard Business School Case 511-058

NetApp

NetApp had undertaken an award-winning overhaul and upgrading of its channel strategy design that accounted for 46% of North America sales in 2006. Nonetheless, NetApp senior management announced they expected to grow revenue another 30% in fiscal 2007 with half the growth coming from channel sales. To meet those goals, a number of issues that had developed around the channel sales program would need to be addressed.

Purchase this case:
http://hbr.org/product/netapp/an/511058-PDF-ENG

North Sails is the world's leading sailmaker. The company commands a global market share of more than 50% and is largely responsible for the rapid technological progress in the sailmaking industry over the past 30 years. CEO Tom Whidden needs to consider how to best defend the company's leading position. Specifically, North currently uses neither patents nor copyright to protect its technology. The company even allows its designers to use its software when they do independent work. The case encourages a discussion of the role of intellectual property rights in safeguarding technology and know-how. By highlighting the costs and benefits of patents and copyright, the case points to a challenge that is common across many companies: their most valuable assets are largely intangible, and these assets cannot easily be pinned down and protected. North's solution to this challenge is highly unusual and creative.

Purchase this case:
http://hbr.org/product/intellectual-property-strategy-at-north-technology-group-sailing-downwind/an/714403-PDF-ENG

  • Harvard Business School Case 114-004

Komatsu in China

Komatsu built a very successful business in China over the last two decades. But it is now facing rising competition from lower cost domestic Chinese companies, which are themselves trying to become global players. Facing the same situation, Caterpillar is implementing a two-brand strategy. What should Komatsu do to retain its leadership position in China?

Purchase this case:
http://hbr.org/product/komatsu-in-china/an/114004-PDF-ENG

  • Harvard Business School Case 114-043

Harley-Davidson in India (A)

This case examines how Harley-Davidson has worked to globalize its business by focusing on how CEO Matt Levatich and India country manager Anoop Prakash assess and act on the opportunities and challenges posed by entering the Indian market, and where and how the lessons they learn there are applicable elsewhere both geographically and within Harley-Davidson's organization.

Purchase this case:
http://hbr.org/search/114043-PDF-ENG

  • Harvard Business School Case 714-430

Going Social: Durex in China

When Reckitt Benckiser (RB), a leading consumer goods company, first entered China, it encountered significant challenges. RB's strategy relied on selling high-margin products supported by cost-effective advertising and distribution, but the highly competitive Chinese market made it hard to sustain high margins, inflated television advertising rates made marketing expensive, and an inefficient distribution system increased costs further. In 2010, RB managed to overcome these constraints for one of its brands, Durex, the best-selling condom brand in the world, by leveraging Chinese social media platforms and investing in offline and online distribution. The new strategy paid off-Durex condom sales increased threefold in China, and market share increased by over 10%. RB now wanted to generate the same results for its other brands in the country and needed to decide how to balance investments in offline distribution, social media campaigns, and e-commerce in order to keep growing not just in China, but in other emerging markets as well.

Purchase this case:
http://hbr.org/product/going-social-durex-in-china/an/714430-PDF-ENG