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.
The real cause of GM's decline
In 2009, General Motors went bankrupt--an inglorious way point for a company that several decades earlier commanded 62 percent of the market. Many analysts ascribed the failure to the company's legacy labor and health care costs, but a new working paper coauthored by Rebecca Henderson says more traditional competitive forces were at work. "Management Practices, Relational Contracts and the Decline of General Motors" is included in the Winter 2014 issue of Journal of Economic Perspectives.
The evolving role of chief sustainability officer
CSOs have been gaining prominence in large organizations since the start of the new century, but the role itself is still evolving. Kathleen Miller and George Serafeim, authors of the new working paper Chief Sustainability Officers: Who Are They and What Do They Do? find that their power is both centralizing and decentralizing as companies up their environmental efforts.
Dell: The arguments for and against going private
Michael Dell's efforts in 2012 to take his computer company private is the subject of a new case, "Southeastern Asset Management Challenges Buyout at Dell." The case explores Dell's reasons for pursuing a buyout, and those of major shareholder Southeastern Asset Management for challenging the proposal.
- September 2014
- Organization Science
Abstract—We examine how unfavorable social comparisons differentially spur employees of varying hierarchical levels to engage in deception. Drawing on literatures in social psychology and workplace self-esteem, we theorize that negative comparisons with peers could cause either junior or senior employees to seek to improve reported relative performance measures via deception. In a first study, we use deceptive self-downloads on SSRN, the leading working paper repository in the social sciences, to show that employees higher in a hierarchy are more likely to engage in deception, particularly when the employee has enjoyed a high level of past success. In a second study, we confirm this finding in two scenario-based experiments. Our results suggest that longer-tenured and more successful employees face a greater loss of self-esteem from negative social comparisons and are more likely to engage in deception in response to reported performance that is lower than that of peers.
- September 2014
- Journal of Economic Perspectives
Abstract—General Motors was once regarded as one of the best managed and most successful firms in the world, but between 1980 and 2009 its share of the U.S. market fell from 62.6% to 19.8%, and in 2009 the firm went bankrupt. In this paper we argue that the conventional explanation for this decline-namely high legacy labor and health care costs-is seriously incomplete and that GM's share collapsed for many of the same reasons that many of the other highly successful American firms of the 50s, 60s, and 70s were forced from the market, including a failure to understand the nature of the competition they faced and an inability to respond effectively once they did. We focus particularly on the problems GM encountered in developing the relational contracts essential to modern design and manufacturing. We discuss a number of possible causes for these difficulties, including GM's historical practice of treating both its suppliers and its blue collar workforce as homogeneous, interchangeable entities as well as its view that expertise could be partitioned so that there was minimal overlap of knowledge amongst functions or levels in the organizational hierarchy and decisions could be made using well-defined financial criteria. We suggest that this dynamic may have important implications for our understanding of the role of management in the modern, knowledge-based firm, and for the potential revival of manufacturing in the United States.
Publisher's link: http://www.hbs.edu/faculty/Pages/download.aspx?name=14-062.pdf
- September 2014
- Managing Consumer Services: Factory or Theater
Abstract—While services already dominate economic activity in all major economies in the world, there has been curiously little investigation into many aspects of service management. For example, while product design and development have received a great deal of attention, the subject of service design has not been very visible in the research literature. There are many individual designers and design firms famous for their contributions to product design, but the same cannot be said for services. Undoubtedly many examples of outstanding service design exist, and we will mention some later in this work. But recognition of service design as a discipline, as a management function, or a job description still seems to be rare.
- September 2014
- Harvard Business Review
Abstract—The author has come to a conclusion that may surprise you: trying to apply management practices uniformly across geographies is a fool's errand. Best practices simply don't travel well across borders. That's because conditions not just of economic development but of institutional maturity, educational norms, language, and culture vary enormously from place to place. Students of managerial practice once thought that their technical knowledge of best manufacturing practices (to take one example) was sufficiently developed that processes simply needed to be tweaked to fit local conditions. More often, it turns out, they have to be reworked quite radically-not because the technology is wrong but because everything around it changes how it will work. There's nothing wrong with the tools we have at our disposal, but their application requires contextual intelligence: the ability to understand the limits of our knowledge and to adapt that knowledge to a context different from the one in which it was acquired. Until we can better develop and apply contextual intelligence, failure rates for cross-border businesses will remain high, what we learn from experiments unfolding around the world will remain limited, and the promise of healthy growth in all parts of the world will remain unfulfilled.
Publisher's link: http://hbr.org/2014/09/contextual-intelligence/ar/1
- September 2014
- The Interdisciplinary Science of Consumption
Abstract—Although linked, researchers have long distinguished appetitive from consummatory phases of reward processing. Recent improvements in the spatial and temporal resolution of neuroimaging techniques have allowed researchers to separately visualize different stages of reward processing in humans. These techniques have revealed that evolutionarily conserved circuits related to affect generate distinguishable appetitive and consummatory signals, and that these signals can be used to predict choice and subsequent consumption. Review of the literature surprisingly suggests that appetitive rather than consummatory activity may best predict future choice and consumption. These findings imply that distinguishing appetite from consumption may improve predictions of future choice and illuminate neural components that support the process of decision making.
Publisher's link: http://mitpress.mit.edu/books/interdisciplinary-science-consumption
- September 2014
- Harvard Business Review
Abstract—Language pervades every aspect of organizational life. Yet leaders of global organizations-where unrestricted multilingualism can create friction-often pay too little attention to it in their approach to talent management. By managing language carefully, firms can hire and develop the best employees, improve collaboration on global teams, and strengthen the company's footing in local markets. Language proficiency-either in a lingua franca, or shared language, or in a local language-does not guarantee high performance. Recruiters may favor fluency over other capabilities. They may rely on external hires with language skills rather than grooming internal candidates with the capacity and motivation to learn new languages. And leaders may give expatriate assignments not to the best candidates but to people who speak certain languages. To hire and promote the best people, firms may need to provide training to meet global and local language needs. Fluency in a language also does not equal cultural fluency. For leaders, understanding the cultural background of each team member and customers is as essential as learning to conjugate new verbs. The same can be said for employees at all levels: even when they are fluent in the lingua franca, a lack of cultural understanding can cause significant misunderstandings. To prevent such rifts, language training must include cross-cultural education.
Publisher's link: http://hbr.org/2014/09/whats-your-language-strategy/ar/1
- September 2014
- Journal of Environmental Economics and Management
Abstract—We study how government green procurement policies influence private-sector demand for similar products. Specifically, we measure the impact of municipal policies requiring governments to construct green buildings on private-sector adoption of the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) standard. Using matching methods, panel data, and instrumental variables, we find that government procurement rules produce spillover effects that stimulate both private-sector adoption of the LEED standard and investments in green building expertise by local suppliers. These findings suggest that government procurement policies can accelerate the diffusion of new environmental standards, which require coordinated complementary investments by various types of private adopter.
Publisher's link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2142085
- September 2014
- Marketing Letters
Abstract—In the first decade of consumer neuroscience, strong progress has been made in understanding how neuroscience can inform consumer decision making. Here, we sketch the development of this discipline and compare it to that of the adjacent field of neuroeconomics. We describe three new frontiers for ongoing progress at both theoretical and applied levels. First, the field will broaden its boundaries to include genetics and molecular neuroscience, each of which will provide important new insights into individual differences in decision making. Second, recent advances in computational methods will improve the accuracy and out-of-sample generalizability of predicting decisions from brain activity. Third, sophisticated meta-analyses will help consumer neuroscientists to synthesize the growing body of knowledge, providing evidence for consistency and specificity of brain activations and their reliability as measurements of consumer behavior.
Abstract—We examine the effect of mandatory sustainability reporting on corporate disclosure practices. Specifically, we examine regulations mandating the disclosure of environmental, social, and governance information in China, Denmark, Malaysia, and South Africa using differences-in-differences estimation with propensity score matched samples. We find significant heterogeneity in corporate disclosure responses across those four countries. Relative to propensity score matched control firms, treated firms in China and South Africa increased disclosure significantly. We also find increased propensity to receive assurance to increase disclosure credibility in the case of South Africa, and increased propensity to adopt reporting guidelines to increase disclosure comparability in both China and South Africa. In contrast, treated firms in Denmark and Malaysia did not increase disclosure. Danish firms responded by embedding environmental and social factors in their supply chain management and by signing on the United Nations Global Compact, while Malaysian firms adopted reporting guidelines. We do not find any evidence that the disclosure regulations adversely affected shareholders. Instrumental variables regressions suggest that increases in disclosure driven by the regulation are associated with increases in firm value. Our results highlight the role of local context and institutional differences in how firms in different countries respond to reporting regulations.
Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=11-100.pdf
The Effect of Target Difficulty and Incentives on Target Completion: The Case of Reducing Carbon Emissions
Abstract—Setting targets and providing monetary incentives are two widely used motivating tools to achieve desirable organizational outcomes. We focus on reduction of carbon emissions as a setting in which to examine how target difficulty and monetary incentives provided to managers affect the degree of target completion. We use a novel dataset compiled by the Carbon Disclosure Project (CDP) that yields a sample of 1,127 firms from around the world. We find that firms setting more difficult targets or providing monetary incentives are able to complete a higher percentage of the target. The effect of target difficulty on target completion is nonlinear: above a certain level, stretching the target decreases the percentage of target completion. Moreover, we find that bundling difficult targets together with monetary incentives negatively affects the degree of target completion, suggesting that these two motivating tools act as substitutes in our setting. Finally, we provide evidence that both target difficulty and monetary incentives motivate managers to a) undertake more carbon reducing projects that generate more carbon savings, and b) invest more money in such projects, without increasing the average payback period of the project portfolio.
Download working paper: http://ssrn.com/abstract=2133004
Abstract—Over 10,000 people in the U.S. die each year while waiting for an organ. Attempts to increase organ transplantation have focused on changing the registration question from an opt-in frame to an active choice frame. We analyze this change in California and show it decreased registration rates. Similarly, a "field in the lab" experiment run on actual organ donor registration decisions finds no increase in registrations resulting from an active choice frame. In addition, individuals are more likely to support donating the organs of a deceased who did not opt-in than one who said "no" in an active choice frame.
Download working paper: http://www.nber.org/papers/w20378
Abstract—While a number of studies document that organizations go through numerous stages as they increase their commitment to sustainability over time, we know little about the role of the Chief Sustainability Officer (CSO) in this process. Using survey and interview data we analyze how a CSO's authority and responsibilities differ across organizations that are in different stages of sustainability commitment. We document increasing organizational authority of the CSO as organizations increase their commitment to sustainability moving from the Compliance to the Efficiency and then to the Innovation stage. However, we also document a decentralization of decision rights from the CSO to different functions, largely driven by sustainability strategies becoming more idiosyncratic at the Innovation stage. The study concludes with a discussion of practices that CSOs argue to accelerate the commitment of organizations to sustainability.
Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=15-011.pdf
Abstract—Purpose-Understanding the Nobel Prize as a "true" heritage brand in a networked situation and its management challenges, especially regarding identity and reputation. Methodology-The Nobel Prize serves as an in-depth case study and is analysed within an extended corporate brand identity framework that incorporates reputation. Findings-The Nobel Prize is a "true" corporate heritage brand (in this case, organizational brand). It is the hub of a linked network of brands-"a federated republic." The brand core of the Nobel Prize is its set of core values supporting and leading to its promise: "for the benefit of mankind." The core constitutes a hub around which the essential award-granting institutions, as well as the Nobel Foundation and other related entities and stakeholders gravitate. The laureates represent the Nobel Prize track record. The will of Alfred Nobel, described as "the Nobel Prize federation's constitution" is interpreted by us as indicating a brand-oriented approach within a network of interrelated institutions and organisations. Research implications-The concept of brand-oriented networks is introduced. An individual organisation's approach to its marketplace, brand resources, and strategy may to varying degrees be brand oriented. This study suggests that brand orientation also applies to a network of brands. Separately, the extended version of the "corporate brand identity matrix" provides a corporate brand framework for identity and reputation management, including networked brands. Practical implications-The new extended framework and the definition of a brand network with a hub provide logic for managing the network. Essential managerial questions on how to leverage brand heritage or not are placed in perspective. Identifying and understanding one's brand heritage and the importance of brand stewardship are reinforced. Suggestions for further research-The investigation of brand networks (market oriented and/or brand oriented) and the application of the new "Corporate Brand Identity and Reputation Matrix." Originality/Value-The first case study of the Nobel Prize from a strategic brand management perspective. The articulation and characterisation of it as a brand-oriented network. The development and application of the new CBIRM.
Download working paper: http://www.hbs.edu/faculty/Pages/download.aspx?name=15-010.pdf
Cases & Course Materials
- Harvard Business School Case 214-083
Provides an introduction to the fields of project finance and infrastructure finance and gives a statistical overview of project-financed investments over the years from 2009 to 2013. Examples of project-financed investments include the Kashagan oil field development in Kazakhstan (1997), the $1 billion Port of Miami Tunnel (2007), the $54 billion Gorgon liquefied natural gas (LNG) project in Australia (2009), and the $6 billion Oyu Tolgoi copper mine expansion in Mongolia (2014). Globally, firms financed a record $415 billion in capital expenditures using project finance in 2013, and the use of project-financed investment has grown at a compound rate of 8% over the past 15 years despite several macroeconomic crises. This note focuses primarily on private sector investment in industrial and infrastructure projects and contains four sections. The first section defines project finance and contrasts it with other well-known financing mechanisms. The second section describes the evolution of project finance from its beginnings in the natural resources industry in the 1970s, to the U.S. power industry in the 1980s, to a much wider range of industry applications and geographic locations in the 1990s and 2000s, and most recently to infrastructure finance in the 2010s. The third section provides a statistical overview of project-financed investment over the last five years (2009 to 2013) and looks at industry, project, and participant specific data. The third section also provides recent data on infrastructure investments and public-private partnerships. The final section discusses current and likely future trends.
- Harvard Business School Case 114-015
In late 2012, Michael Dell wants to take Dell Inc., the company he founded, private. Mr. Dell believes that the successful company's transformation from a personal computer (PC) manufacturer to an enterprise solutions and services provider (ESS) is dependent on going private without the short-term results scrutiny public companies face. He and a private equity firm, Silver Lake Partners, have made an offer for the company, which Dell Inc.'s board has accepted. The deal requires the vote of a majority of shareholders. Southeastern Asset Management, an investment firm and Dell Inc.'s second largest shareholder behind Mr. Dell, strongly oppose the deal because the offer is well below what Southeastern believes is Dell Inc.'s intrinsic value. Southeastern, along with activist investor Carl Icahn, wage a campaign to defeat the go-private deal and propose a leveraged recapitalization as an alternative. On several occasions it appears that the deal will be voted down by shareholders, but rule changes made by Dell Inc.'s board eventually pave the way for Mr. Dell to take the eponymous company private-for a price only slightly higher than the original bid. The case describes the reasons why Mr. Dell wants to take Dell Inc. private, why Southeastern and Icahn oppose the deal, the specifics of both the Dell/Silver Lake bid and of Southeastern's/Icahn's leveraged recapitalization proposals, and the events that took place.
- Harvard Business School Case 514-074
In 2012, Sanofi Pasteur was racing to develop a vaccine against dengue, a mosquito-borne disease, and was evaluating this product in a Phase IIb trial conducted with schoolchildren in Thailand. But while the candidate vaccine met the high safety expectations and a good balanced immune answer, it had a proof of efficacy of only 30%, far below the 70% mark the company had targeted. Guillaume Leroy, vice president of the Dengue Company at Sanofi Pasteur, reflected on the Phase IIb trial's surprising outcome and the way forward. He had to decide whether to go ahead with the vaccine trials and production and, if so, needed to develop a strategic plan on how to price and deliver the vaccine for a rapid rollout.