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.

December 14, 2010

One place where consumers are willing to pay for content on the web is in sports, where subscription services such as that run by ESPN have proven successful. The recent case study, "The NFL's Digital Media Strategy," looks at key decisions made by the National Football League in one online segment: wireless. The case follows Brian Rolapp (HBS MBA '00), senior vice president of media strategy and digital media, as he makes recommendations to team owners on strategy for the mobile space. In the end, the NFL inks a landmark $720 million agreement over four years with Verizon. The case "enables a rich discussion of new distribution opportunities and ensuing marketing and channel-management challenges." The authors are HBS professor Anita Elberse, Kelsey Calhoun (HBS MBA '10), and Daven Johnson (HBS '11).

In new HBS research published recently, the authors document how a strategy of diversification was an effective risk hedge during the financial crisis, providing both financial and investment advantages. Read "Does Diversification Create Value in the Presence of External Financing Constraints? Evidence from the 2007-2009 Financial Crisis." In another paper, "The Psychological Costs of Pay-for-Performance: Implications for Strategic Compensation," researchers delve into the psychological factors that affect employee motivation and attraction, and tie them together with how compensation systems work.

— Sean Silverthorne

Working Papers

The Influence of Prior Industry Affiliation on Framing in Nascent Industries: The Evolution of Digital Cameras


New industries sparked by technological change are characterized by high uncertainty. In this paper we explore how a firm's conceptualization of products in this context, as reflected by product feature choices, is influenced by prior industry affiliation. We study digital cameras introduced from 1991 to 2006 by firms from three prior industries. We hypothesize and find first, that prior industry experience shapes a set of shared beliefs resulting in similar and concurrent firm behavior; second, that firms notice and imitate the behaviors of firms from the same prior industry; and third, that as firms gain experience with particular features, the influence of prior industry decreases. This study extends previous research on firm entry into new domains by examining heterogeneity in firms' framing and feature-level entry choices.

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Modularity for Value Appropriation—How to Draw the Boundaries of Intellectual Property


The existing theory of modularity explains how modular designs create value. We extend this theory to address value appropriation. A product or process design that is modular with respect to intellectual property (IP) allows firms to better capture value in situations where knowledge and value creation are distributed across many actors. We propose a theory of IP modularity based on value maximization net of transaction and agency costs. We then use case examples to extend the theory into practical settings and derive strategic recommendations and empirical predictions.

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Diversification Create Value in the Presence of External Financing Constraints? Evidence from the 2007-2009 Financial Crisis


We show that the value of corporate diversification increased during the 2007-2009 financial crisis. Diversification gave firms both financing and investment advantages. First, conglomerates became significantly more leveraged relative to comparable focused firms. Second, conglomerates' access to internal capital markets became more valuable not just because external capital markets became more costly, but also because the efficiency of internal capital allocation increased significantly during the crisis. Our analysis provides new evidence on how the diversification discount and its drivers vary with financial constraints and economic conditions and suggests that corporate diversification can serve an important insurance function for investors.

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The Psychological Costs of Pay-for-Performance: Implications for Strategic Compensation


An organization's compensation strategy plays a critical role in motivating workers and attracting high-performing employees. Most of the research linking compensation to strategy relies on the principal-agent model of economics, a model that has been largely unsuccessful in predicting the extent to which companies use performance-based pay. We argue that while agency theory provides a useful framework to analyze strategic compensation, it fails to consider a host of psychological factors that affect employee motivation and attraction. This paper examines how psychological costs from social comparison, overconfidence, and loss aversion reduce the viability of individual performance-based compensation systems and provides a framework that integrates insights from psychology and decision research into the traditional compensation framework of agency theory. The paper also discusses empirical implications and possible theoretical extensions.

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Testing Coleman's Social-Norm Enforcement Mechanism: Evidence from Wikipedia


Since Durkheim, sociologists have believed that dense network structures lead to fewer norm violations. Coleman (1990) proposed one mechanism generating this relationship and argued that dense networks provide an opportunity structure to reward those who punish norm violators, leading to more frequent punishment and in turn fewer norm violations. Despite ubiquitous scholarly references to Coleman's theory, little empirical work has directly tested it in large-scale natural settings with longitudinal data. We undertake such a test using records of norm violations during the editing process on Wikipedia, the largest user-generated on-line encyclopedia. These data allow us to track all three elements required to test Coleman's mechanism: norm violations, punishments for such violations, and rewards for those who punish violations. The results are broadly consistent with Coleman's mechanism.

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Marketplace Institutions Related to the Timing of Transactions


This paper describes the unraveling of transaction dates in several markets, including the labor markets for new lawyers hired by large law firms and for gastroenterology fellows, and the market for post-season college football bowls. Together these will illustrate that unraveling can occur in markets with competitive prices, that it can result in substantial inefficiencies, and that marketplace institutions play a role in restoring efficiency. I'll conclude with open questions about the role of marketplace institutions and the timing of transactions.

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Cases & Course Materials

CDG: Managing in China's Economic Transformation

Roy Y.J. Chua, Shaohui Chen, and Lisa B. Kwan
Harvard Business School Case 411-067

China Data Group (CDG) is a leading business processes outsourcing company based in Beijing, China. Roc Yang, chairman of CDG, had to confront a dilemma when he discovered that one of his senior managers gave a gift to a potential client in an effort to win a large business deal. Although this practice was pervasive in the China business context characterized by heavy reliance on personal relationships or guanxi, it went against the founding principles of CDG-professionalism and service quality. Yang had to decide where to draw the line between adherence to principles of professionalism and local norms in a country caught in the midst of rapid economic transformation.

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The NFL's Digital Media Strategy

Anita Elberse, Kelsey Calhoun, and Daven Johnson
Harvard Business School Case 511-055

: In late 2009, Brian Rolapp, senior vice president of media strategy and digital media for the NFL, was faced with the challenge of determining the league's strategic approach to the wireless market—and presenting his views to NFL team owners. What was the league's best strategy for the mobile space? The case describes the antecedents of what is widely regarded as a landmark deal for the NFL, its $780 million, four-year exclusive partnership with Verizon. Provides in-depth information on the NFL's digital media revenues and relates those to the league's overall media and other revenues. Enables a rich discussion of new distribution opportunities and ensuing marketing and channel-management challenges.

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Cresud S.A., Farmer or Real Estate Developer?

Ray A. Goldberg, Arthur I Segel, Gustavo A. Herrero, and Andrew Terris
Harvard Business School Case 211-011

Alejandro EIsztain, CEO of Cresud S.A., is faced with the difficult choice of whether to sell, develop, or continue to hold the 151,000 hectares of remaining undeveloped farmland at the company's Los Pozos farm in Argentina. Developing the land will further expose Cresud to a variety of risks related to owning and operating farmland, but the potential financial rewards are potentially significant. As competition has increased and farmland values have skyrocketed in the last eight years, Cresud's overall corporate strategy has been to increasingly focus on development opportunities outside of the country—in areas such as Brazil, Paraguay, and Bolivia. Alejandro's looming decision on Los Pozos is, in many ways, reflective of choices facing his company in general.

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Farmland Investing: A Technical Note

Ray A. Goldberg, Arthur I Segel, Gustavo A. Herrero, and Andrew Terris
Harvard Business School Note 211-022

This note seeks to provide an overview of farmland investing, the investment thesis behind investing in agriculture, how and why investors would choose farmland, and the general risks and return characteristics of this asset class. In recent years, a growing number of individual and institutional investors have allocated a portion of their capital into agricultural farmland. Private investors, public companies, and sovereign wealth funds are now all currently purchasing and selling large amounts of farmland for profit.

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Shenzhen Capital Group: A Pioneer in China's VC Industry

Paul A. Gompers, Shaohui Chen, Jessie Lin, and Shelley Ling
Harvard Business School Case 211-029

Haitao Jin, chairman of Shenzhen Capital Group Co., Ltd. (SCGC), and Wanshou Li, president of SCGC, must decide how to continue to grow their venture capital/private equity firm in China. SCGC is a premier VC/PE fund in China and a pioneer of the Government Sponsored Fund (GBF) structure. The firm had grown to RMB 20 billion in just 10 years and had funds in 29 different cities across China. As competition for investments becomes more intense, Jin and Li must decide the growth and strategic direction that SCGC should pursue. The case highlights the important success factors for VC/PE investing in China as well as the important role that the Chinese government plays in the financing landscape.

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Global Expansion at Sanford C. Bernstein

Linda A. Hill and Dana M. Teppert
Harvard Business School Case 411-051

Sanford C. Bernstein, a premier sell-side research firm, is expanding globally and has recently opened an office in Hong Kong. Global Director of Research Robert van Brugge must consider how best to organize the firm's research department to enhance cross-sector and cross-geography collaboration among the senior research analysts in order to adapt to the challenging realities of global expansion in the financial services industry.

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Robin Bienenstock at Sanford C. Bernstein

Linda A. Hill and Dana M. Teppert
Harvard Business School Supplement 411-053

Robin Bienenstock, a senior sell-side equity research analyst at Sanford C. Bernstein, considers how to build her research franchise given the changing nature of the industry and the firm. A collaborative research paper called "Computer in Your Pocket" was recently published by four of her colleagues, but she was not consulted or asked to contribute. As clients call Bienenstock asking for her response to the investment conclusions in the paper, Bienenstock wonders 1) how she should respond to the report and 2) how she can increase her collaborative work in the future. As she continues to grow her franchise in terms of both the number of companies under coverage and team members, she wonders how she can best organize her team in order to leverage herself effectively.

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Toni Sacconaghi at Sanford C. Bernstein

Linda A. Hill and Dana M. Teppert
Harvard Business School Supplement 411-052

Toni Sacconaghi, a senior sell-side equity research analyst at Sanford C. Bernstein covering U.S. IT hardware companies, thinks about the challenges and opportunities presented by the firm's new office in Hong Kong. Sacconaghi was previously the only analyst covering IT hardware companies for Bernstein. However, the firm has recently hired an analyst to cover Asian IT hardware companies in Hong Kong. Sacconaghi thinks about the best way to work collaboratively with the new Asian analyst.

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Polyface: The Farm of Many Faces

Deishin Lee and Stephanie van Sice
Harvard Business School Case 611-001

This case explores a method of value creation through exploiting synergies that exist in an environment where there is diversity. The context of the case is a farm where biodiversity is leveraged to create value. This is contrasted to industrial farming, which operates on the principles of economies of scale. The case also provides an opportunity for students to discuss the environmental impact of different types of operating systems.

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The iPhone at IVK

Richard Nolan and Robert D. Austin
Harvard Business School Case 911-413

The CIO addresses a decision to replace salesmen netbook PCs with iPhones, including converting the company's sales and customer applications to the iPhone platform.

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Hikma Pharmaceuticals (B)

John A. Quelch
Harvard Business School Supplement 511-075

By 2009, Hikma Pharmaceuticals operated 13 manufacturing plants in 8 countries of which 5 were approved by the U.S. Food and Drug Administration. Hikma tracked its sales revenues over the period to show from where the largest contributors were from...

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On Weldon's Watch: Recalls at Johnson & Johnson from 2009 to 2010

Clayton Rose, Sandra J. Sucher, Rachel Gordon, and Matthew Preble
Harvard Business School Case 311-029

: In October of 2010, Johnson & Johnson (J&J) was unable to extricate itself from a year long recall crisis that had subjected the firm to criticism from Congress and regulators, resulted in the resignation of one of the firm's most senior officers, and cost hundreds of millions of dollars from lost sales of J&J brands. This case examines the series of recalls and the strategic and cultural changes at the company that may have led to the recalls. It allows for an exploration of the reality of the iconic J&J "Credo"—its long standing set of corporate values.

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