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.

June 2, 2010

If you rank among the top 3 percent to 5 percent of talent in your company, you are high potential: on a fast track to develop the knowledge and skills of an exemplary employee and eventual leader. Though many companies struggle over how to nurture their smartest, most hardworking staff, 98 percent of 45 companies surveyed worldwide reported that they purposefully identified their high potentials. "Are You High Potential?" by Douglas A. Ready, Jay A. Conger, and HBS professor Linda A. Hill writing in the June issue of Harvard Business Review describes how employees could get and stay on their organization's high-potential list, whether that list is formal or (more likely) informal. In the same issue of Harvard Business Review, HBS professor Lynn S. Paine describes in "The Globe: The New China Rules" how expatriate CEOs can succeed in the pressure cooker that is the world's third-largest economy. "The most effective leaders have picked up the crucial ability to play roles that Westerners often view as contradictory," writes Paine. "They are strategic yet hands-on; disciplined yet entrepreneurial; process oriented yet sensitive to people; authoritative yet nurturing; firm yet flexible; and action oriented yet circumspect. Above all, they must have the intellectual dexterity to develop new frameworks and capabilities to meet China's particular circumstances." Cases this week examine a public-private partnership for irrigation infrastructure in Brazil ("Codevasf"), battery-operated electric vehicles in the United States ("Re-THINK-ing THINK: The Electric Car Company"), and FDI in Ireland ("Foreign Direct Investment and Ireland's Tiger Economy"), among other topics. "Russia: Revolution and Reform" studies the regimes of Presidents Boris Yeltsin, Vladimir Putin, and Dmitry Medvedev and their different approaches to business-government relations.
— Martha Lagace


Managing the New Primary Care: The New Skills That Will Be Needed


Developing new models of primary care will demand a level of managerial expertise that few of today's primary care physicians possess. Yet medical schools continue to focus on the basic sciences, to the exclusion of such managerial topics as running effective teams. The approach to executing reform appears to assume that practice managers and entrepreneurs can undertake the managerial work of transforming primary care, while physicians stick with practicing medicine. This essay argues that physicians currently in practice could be equipped over time with the management skill necessary to develop and implement new models of primary care.

A Choice Prediction Competition for Market Entry Games: An Introduction

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The Counterfeit Self: The Deceptive Costs of Faking It


Although people buy counterfeit products to signal positive traits, we show that wearing counterfeit products makes individuals feel less authentic and increases their likelihood of both behaving dishonestly and judging others as unethical. In four experiments, participants wore purportedly fake or authentically branded sunglasses. Those wearing fake sunglasses cheated more across multiple tasks than did participants wearing authentic sunglasses, both when they believed they had a preference for counterfeits (Experiment 1a) and when they were randomly assigned to wear them (Experiment 1b). Experiment 2 shows that the effects of wearing counterfeit sunglasses extend beyond the self, influencing judgments of other people's unethical behavior. Experiment 3 demonstrates that the feelings of inauthenticity that wearing fake products engenders—what we term the counterfeit self—'mediate the impact of counterfeits on unethical behavior. Finally, we show that people do not predict the impact of counterfeits on ethicality; thus, the costs of counterfeits are deceptive.

Read the paper: norton ariely.pdf

Do Inventory and Gross Margin Data Improve Sales Forecasts for U.S. Public Retailers?


Firm-level sales forecasts for retailers can be improved if we incorporate cost of goods sold, inventory, and gross margin (defined here as the ratio of sales to cost of goods sold) as three endogenous variables. We construct a simultaneous equations model, estimated using public financial and non-financial data, to provide joint forecasts of annual cost of goods sold, inventory, and gross margin for retailers using historical data. We show that sales forecasts from this model are more accurate than consensus forecasts from equity analysts. Further, the residuals from this model for one fiscal year are used to predict retailers for whom the relative advantage of model forecasts over consensus forecasts would be large in the next fiscal year. Our results show that historical inventory and gross margin contain information useful to forecast sales, and that equity analysts do not fully utilize this information in their sales forecasts.

The Manufacturer's Incentive to Reduce Lead Times


It is generally a well acknowledged fact that, ceteris paribus, reducing the lead times between downstream and upstream parties in a supply chain is desirable from an overall system perspective. However, an upstream party (e.g., a manufacturer) may have strong disincentives to offer shorter lead times, even if lead time reduction came at no cost. This paper investigates a manufacturer's incentive to reduce lead times. We consider a setting in which the downstream party has the ability to exert a costly effort to increase demand (e.g., through sales promotions, advertising, etc.) during the selling season and compare two situations: one where there is zero lead time (i.e., all demand can be satisfied after observing the demand realization), and one where orders need to be made before demand is realized. In our analysis, the latter situation corresponds to a newsvendor model with the additional decision of choosing a sales effort to increase demand at a convex increasing cost after observing demand. We identify two interacting effects that may inhibit shorter lead times. A so-called "safety stock effect" can be observed when a lower risk of stocking out under short lead times induces the downstream party to alter its order quantity. A second effect, termed as "effort effect," arises if shorter lead times impact the downstream party's optimal sales effort and, as a consequence, lead to different order quantities. We provide a formal characterization of both effects, insight into how these effects interact, and information on which conditions the manufacturer has an incentive to offer shorter lead times.

Shadow of the Contract: How Contract Structure Shapes Inter-Firm Dispute Resolution


This paper investigates how contract structure influences inter-firm dispute resolution processes and outcomes by examining a unique dataset consisting of over 150,000 pages of documents relating to 102 business disputes. We find that the level of contractual detail affects the type of dispute resolution approach that is adopted when conflict arises, and that different approaches are associated with different costs for resolving the dispute. We also find that the effect of contract structure on dispute resolution approach is moderated by the degree of coordination required in the relationship, and that the effect of dispute approach on resolution costs is moderated by the degree of power asymmetry between the parties. Thus, even after controlling for various attributes of the exchange relationship and the dispute, the choice of contracting structure has important strategic implications.

The Globe: The China Rules: A Practical Guide for CEOs Managing Multinational Corporations in the People's Republic

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Are You a High Potential?

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Altruistic Dynamic Pricing with Customer Regret


A model is considered where firms internalize the regret costs that consumers experience when they see an unexpected price change. Regret costs are assumed to be increasing in the size of price changes and this can explain why the size of price increases is less sensitive to inflation than in models with fixed costs of changing prices. The latter predict unrealistically large responses of price changes to inflation for firms that do not frequently reduce their prices. Adjustment costs that depend on the size of price changes also raise the variability on the size of price increases. Lastly, it is argued that the common practice of announcing price increases in advance is much easier to rationalize with regret concerns by consumers than with more standard approaches to price rigidity.

Change for Change's Sake

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Working Papers

Limits of Nonprofit Impact: A Contingency Framework for Measuring Social Performance


Leaders of organizations in the social sector are under growing pressure to demonstrate their impacts on pressing societal problems such as global poverty. We review the debates around performance and impact, drawing on three literatures: strategic philanthropy, nonprofit management, and international development. We then develop a contingency framework for measuring results, suggesting that some organizations should measure long-term impacts, while others should focus on shorter-term outputs and outcomes. In closing, we discuss the implications of our analysis for future research on performance management.

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Cases & Course Materials

Russia: Revolution and Reform

Rawi Abdelal and Sogomon Tarontsi
Harvard Business School Case 710-030

The collapse of central authority in the Soviet Union in 1991 ushered in a period of revolutionary transformations for the states that emerged in its wake. The leaders of Russia, the USSR's successor, since then have struggled to reestablish central authority while seeking to avoid further disintegration, establish a democratic polity, and institute a market economy. The case contrasts different approaches adopted by Presidents Boris Yeltsin and Vladimir Putin and concludes with a vision outlined by Russia's third post-Soviet president, Dmitry Medvedev. The case focuses on problems of state authority, fiscal capacity, institutionalization of political parties, relations between the federal center and provincial governments, relations between the state and big business, economic policy, and models of economic development.

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Foreign Direct Investment and Ireland's Tiger Economy (B)

Laura Alfaro and Matthew Johnson
Harvard Business School Supplement 710-057

Supplements the (A) case

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David E. Bell, Marcos Fava Neves, Luciano Thome e Castro, and Natalie Kindred
Harvard Business School Case 510-042

With many countries facing scarcity of freshwater and farmable land, Brazil decided to leverage its wealth of both resources to attract global agribusiness players to the historically poor São Francisco Valley (SFV) in the country's northeast. To do so, Brazil instituted its first public-private partnership (PPP) in irrigation at Pontal, a partially built irrigation project in the SFV. In exchange for partial reimbursement from the Brazilian government and free use of 30,000 hectares land for 25 years, the private-sector partner would finish constructing the irrigation infrastructure and establish agricultural operations on the project; the partner was also required to integrate some local smallholders into the production chain. In December 2009, Codevasf was almost ready to start accepting bids for Pontal. For Clementino de Souza Coelho, director of infrastructure for Codevasf, the stakes were high: if successful at Pontal, PPPs could be replicated throughout the SFV, transforming the historically poor region into an agribusiness hub, as well as being a model for the rest of the world.

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Cognizant 2.0: Embedding Community and Knowledge Into Work Processes Embedding

Robert G. Eccles and Thomas H. Davenport
Harvard Business School Case 410-084

Since its inception, Cognizant Technology Solutions has placed a high priority on knowledge management because its global delivery model requires the global sharing of knowledge. Its first major tool was called the Knowledge Management (KM) Appliance, but as Web 2.0 tools came into wider use, this evolved into what the company called "Cognizant 2.0" (C2), which was designed to ensure that the KM Appliance capabilities for storing documents and participative tools such as blogs and wikis were directed towards supporting business goals. This required developing a set of structured work process guidelines and tasks for each major type of work performed internally and for clients. Increasing awareness of C2 among its clients has led the company to consider whether it should turn this into a client-facing service offering itself. As its clients become more interested in knowledge management within their own companies, the interest in a C2-based offering could grow.

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Social Media

Sunil Gupta, Kristen Armstrong, and Zach Scott Clayton
Harvard Business School Note 510-095

This note describes the rapidly changing environment of social media and how managers can leverage it.

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Re-THINK-ing THINK: The Electric Car Company

Joseph B. Lassiter and David Kiron
Harvard Business School Case 810-105

On January 5, 2010, 48-year-old Richard Canny was on his way to meet the governor of Indiana. He was reading his newly issued press release announcing that THINK planned to start automobile production in Elkhart County, Indiana to launch its THINK City battery-operated electric vehicle (EV) in the North American market. The announcement boldly outlined plans to invest $43.5 million in a factory that could begin assembling vehicles in early 2011 and that was sized for a manufacturing capacity of more than 20,000 vehicles per year. A proven automotive industry executive, but a first-time entrepreneur, Canny was CEO of Think Global AS (THINK), a privately held Norwegian maker of battery-operated EVs that are rechargeable through residential electrical power outlets. With this announcement, Canny was committing the company to support the broad North American launch of its line of EVs, among the very first commercially available, highway-approved safe cars in the world that produced zero greenhouse gas tailpipe emissions.

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Plugging In' the Consumer: The Adoption of Electrically Powered Vehicles in the U.S.

Elie Ofek and Polly Ross Ribatt
Harvard Business School Case 510-076

An abstract is unavailable at this time.

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Google in China (B)

John A. Quelch
Harvard Business School Supplement 510-110

In a January 2010 public statement, Google threatened to stop censoring its search results on its website, as required by Chinese authorities. Should Google exit China? Or attempt a compromise with the Chinese government?

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