Abstract

Many companies operate units which are dispersed across different types of markets, and thus serve significantly diverging customer bases. Such market-type dispersion is likely to compromise the headquarters' ability to control its local managers' behavior and satisfy the divergent needs of different types of customers. In this paper we find evidence that market-type dispersion is an important determinant of delegation and the provision of incentives. Using a sample of convenience store chains, we show that market-type dispersion is related to the degree of franchising at the chain level as well as the probability of franchising a given store within a chain. Our results are robust to alternative definitions of market-type dispersion and to other determinants of franchising such as the stores' geographic distance from headquarters and geographic dispersion. Additional analyses also suggest that chains that do not franchise at all, may cope with market-type dispersion by decentralizing operations from headquarters to their stores, and, to a weaker extent, by providing higher variable pay to their store managers.

Date: April 17-18, 2008
Faculty Chair: Richard S. Tedlow

Faculty Summary Report:

Colloquium: The Intellectual History of the Harvard Business School: Six Case Studies

What were the overall goals of the colloquium?

The colloquium had three goals. The first was to explore how seminal ideas have been created, developed, and refined at HBS during the past century. The second was to illustrate the variety of ways in which those ideas have influenced students, the business world, and the academy. And the third was to encourage future innovation by showing the mechanisms through which these high-impact ideas have been developed.

What were a few key developments in the history of Harvard Business School in the areas of entrepreneurship, organizational behavior, accounting and management, values and ethics, and strategy?

For the sake of space, let me select one area of inquiry, and that is Leadership and Organizational Behavior. The key developments include the original teaching of scientific management by Frederick W. Taylor; the change in perspective from Taylorism to the Human Relations approach, which resulted from the Hawthorne studies; and the later development of "contingency theory" as advanced in the classic by Paul Lawrence and Jay Lorsch, Organization and Environment. This extraordinarily rich heritage has exercised an impact around the world and continues to inform the teaching of Leadership and Organizational Behavior here at the Harvard Business School and elsewhere.

The Leadership and Organizational Behavior course in the First Year of the MBA program has a number of daunting assignments. First, it has to overcome the skepticism that some people have about whether leadership can in fact be taught. Then it must locate the organization to be led in the environment in which it exists and develop materials which generate discussion about a variety of issues which, though of critical importance, are often not susceptible to proof. The Leadership and Organizational Behavior course succeeds because, among other reasons, the richness of the field's history informs the faculty, which in turn develop materials which allow for an in-depth exploration of organizational dynamics.

The “starbursts” session provided brief yet in-depth looks at five unique figures in HBS history: John Lintner, Howard Raiffa, Georges Doriot, Theodore Levitt, and C. Roland Christensen. Is it possible to capture in a few words how these five very different people contributed to the life of HBS and to describe their impact outside the School?

Although these people are very different, there are nevertheless important lessons to be learned from them. Each of the five had a signature insight which established his reputation permanently. To be brief:

• John Lintner—the capital asset pricing model.
• Howard Raiffa—Bayesian decision theory.
• Georges Doriot—venture capital.
• Theodore Levitt—marketing myopia.
• C. Roland Christensen—the art of case-method teaching.

What is remarkable is that five such extraordinarily different personalities could flourish at our institution. Their backgrounds, both intellectual and personal, were highly diverse. Christensen, for example, was perhaps the School's foremost apostle of the case method. Doriot, in complete contrast, was the only professor at the School who didn't teach by the case method.

There are two characteristics which unite these five people. One is a profound devotion to the School and to its students. Two is that they all aimed high. The goals of all five of these people were very ambitious. The combination of their particular genius and the institution of which they were a part permitted their ambitions to be realized.

What insights or surprises did you walk away with?

I found it remarkable that so many of the most important figures in HBS history, and indeed so many of the people who were making presentations about them (and are very important at the School today) had to make a leap to become a part of this community. They had to leave their comfort zones. They had to abandon the normal methods of career advancement in the fields in which they were trained.

Without this willingness to take a leap, the greats of the past would never have fulfilled their destinies. Nor would the presenters.

I was also deeply impressed by the difficulty of maintaining this special edge as the special edge as the School grows and as business becomes global. The School has always exerted a powerful magnetism for a certain set of remarkable people. There is nothing automatic about this particular magnetism.

Judging from the history of the School, the challenge of the future is to find new ways in a new era to remain a special institution.

Will there be publications or other output from this colloquium?

I am hoping to write a book based on the colloquium.

The colloquium was video- and audio-taped, and there is already an interest by some people who were unable to attend in seeing some of the sessions. Some of the sessions may be edited and used, for example, to help new faculty to orient themselves to the School.

Think of famous brands you know: Hallmark cards and Coca-Cola soft drinks, for example. What do these products have in common for consumers?

An emotional meaning that taps into thoughts and feelings related to the positive aspects of transformation, according to Gerald Zaltman and Lindsay Zaltman, authors of Marketing Metaphoria: What Deep Metaphors Reveal about the Minds of Consumers (HBS Press, 2008). Transformation is just one metaphor that finds expression in products that satisfy deeply held consumer needs and desires. Other metaphors they notice include balance, journey, and connection.

Gerald Zaltman, an emeritus professor at Harvard Business School, and Lindsay Zaltman, managing director of Olson Zaltman Associates, a research and consulting firm, believe that deep insights from consumers are essential for brands that resonate. In this e-mail Q&A, they describe the thinking behind Marketing Metaphoria and how insights about deep metaphors can improve brand success.

Martha Lagace: What are deep metaphors?

Gerald Zaltman and Lindsay Zaltman: Deep metaphors are basic frames or orientations we have toward the world around us. They are "deep" because they are largely unconscious and universal. They are "metaphors" because they recast everything we think about, hear, say, and do. Because deep metaphors shape the way we engage the world, an understanding of them is necessary to explain why we think and act as we do.

While relatively few in number, much like core emotions, each deep metaphor may take many different forms. For example, balance may involve social, psychological, physical, and aesthetic themes. The small number of deep metaphors, each with many variations, and often working together, constitute a silent but rich and powerful language of thought and expression.

It is a language that marketers must learn to speak if they are to understand and connect meaningfully with their customers.

Q: How did you become fascinated by deep metaphors?

A: We noticed in study after study all around the world that deep metaphors were the most powerful predictors of what customers think and how they react to new or existing goods and services. It was as if we had identified a secret code of thought, one that customers were unaware they were using. For any given topic, two or three basic deep metaphors would be highly relevant no matter how varied the set of customers or consumers being studied were in other ways.

The seven deep metaphors discussed in Marketing Metaphoria are those appearing most often across a variety of products ranging from the choice of motor oil for trucks to baby aspirin to home computers to the meaning of quality health care.

Q: Why are these metaphors important for effective marketing? What happens when marketing does not give attention to them in branding and other efforts?

A: Most thinking occurs without awareness. Even conscious thought originates in unconscious processes. Growing recognition of this is one reason for the increased interest among marketers of the role of emotions in decision-making.

Deep metaphors, being a part of this unconscious language of thought, have three special implications for marketers. First, they are the best, and some linguists argue the only way, to learn about the content of emotions. Knowing the actual content of an emotion is critical. The right type of emotion might be activated but involve the wrong content.

For example, when an advertisement, brand name, scent, or some other stimulus produces a negative reaction, deep metaphors enable us to discover whether shame, guilt, or some other negative feeling is producing the aversive or negative experience.

Second, deep metaphors provide the basic foundations for the brand stories people create based on marketing communications. If managers are to influence the stories consumers create or their relationship with a brand or company, they need to know what deep metaphors are operating. These metaphor insights then allow managers to leverage them in advertising, packaging, product design, and so on. For this reason, they are fundamental building blocks for developing customer relationships.

Third, because deep metaphors are shared by consumers who may vary considerably on the surface, they become very powerful tools for developing new product concepts, communicating about them, restructuring market segmentation strategies, and simplifying product design processes. They are the way of answering the important question, "What is the common denominator around or about which consumers vary?" We can't say that two groups, for instance, are different without reference to a common yardstick. That common yardstick—or deep metaphor—is far more important to understand than the various positions taken on it, although those too are important.

Q: What to your mind are a few effective marketing campaigns that have utilized knowledge of deep metaphors? What did they do that was unusual or insightful?

A: Two classic campaigns come to mind. One is Coca-Cola's "I'd like to teach the world to sing," which invokes the deep metaphor of connection and the ability of the brand to bring diverse people together. It also engaged the deep metaphor of social balance by stressing with a music metaphor the concept of harmony.

A second campaign is the Michelin tire ad portraying the tire as a container—another deep metaphor—of safety for one's family, especially children. The last version of the ad, which ran for many years, showed a child positioned within a tire on a wet surface accompanied by several pairs of animals. This invoked imagery of Noah's Ark, one of the most famous containers of all time that withstood a major catastrophe.

Q: How do you see the future of marketing? Is marketing becoming more or less responsive to consumer needs and desires?

A: Marketers in general have always tried to be responsive to consumer needs and preferences. The issue is whether they do so as well as they could by using the most appropriate or insight-bearing tools and techniques. The high failure rate of new offerings and the failure of existing offerings to achieve expected returns suggests that many marketers are not thinking deeply enough about their customers or consumers. And they fail to think deeply enough partly because they lack deep insights to think about.

Fortunately, recent advances in various disciplines are providing concepts and techniques enabling marketers to dig into what consumers don't know they know. As these advances in understanding human behavior are used by marketers, they will be able to serve their markets with greater success.

Q: What are you working on next?

Gerald Zaltman: I have had a long-standing interest in how managers approach messy or ill-structured problems. These are nonroutine problems with no clear solution. It may not even be evident what the problem is, only that there is one. I have collected considerable data on this topic and will be conducting further interviews to understand the qualities of mind that contribute to success in dealing with this important class of problems.

Lindsay Zaltman: I have been exploring new ways to leverage the power of deep metaphors in other research methods. For instance, I have been developing an applied ethnographic approach that allows us to see how deep metaphors influence the behaviors and actions of consumers by spending time with them in their actual environment. This may mean spending time with consumers by observing them in their homes, on shopping excursions, at social functions, or at their jobs. Insights from this approach can be used for improving product design, reengineering retail environments, or simply as a way to better understand one's customers.

Whether we think we are part of a free market or not, are we really living in an era of state capitalism? What are we to make of estimates that state-owned sovereign funds, led by Abu Dhabi and fueled mostly by oil revenues and trade surpluses, now total more than the value of the world's hedge funds and will grow by six times over just in the next seven years? Or that states like China and Russia now own the world's largest corporations? Or that, according to an estimate by the American Enterprise Institute, economies of countries with authoritarian regimes have grown faster over the past ten years than economies of the most politically free countries?

Whatever happened to the fears just a few short years ago that global corporations with allegiance to no government would constitute an important challenge to the world economic order, one that would be impossible to control with conventional laws and regulations? One doesn't hear much about that these days as state-owned corporations now dwarf even the largest privately-owned global organizations, with PetroChina currently leading the list with a market value of more than $1 trillion. The impact of this phenomenon on competition is interesting. Just ask the manager of a privately-owned global corporation how easy it is to compete with a state-owned institution (and the state's sovereign fund investors) when his competitor is able to arrange to have state aid or investment provided or withheld in large quantities to a potential customer's country of origin depending on whether that customer favors a private or state-owned vendor.

The phenomenon has interesting implications for those in need of capital, particularly if the source of the capital is your strongest economic competitor. For example, the United States, European Union, and South Africa recently have seen several of their very large financial institutions seek help from sovereign funds or state-owned companies with ample money to invest. Among the largest investors have been Abu Dhabi's and Kuwait's Investment Authorities and the China Investment Corporation. There have been outcries for measures requiring investors to adhere to certain practices regarding disclosure and intent. But typically, unless majority investments are at stake, there is little other than moral suasion that can be used to persuade investors to avoid making investments for political reasons or adhere to certain standards for transparency in their investment practices. The stronger the need for capital, the fewer even the most modest requests placed on the investors. Only when investments in what is perceived as critical infrastructure, such as ports, is involved has the U.S. Congress, for example, drawn the line in prohibiting a transaction.

This raises a number of questions. Can national or even regional laws or regulations even begin to deal with what in effect are global markets? Will some kind of global agreement be required? Just how easily will that be achieved? Or does this phenomenon really matter in the long run? Is state capitalism just another way of redistributing the ownership of the world's assets, something that has gone on for centuries? Is it better to have the available money, regardless of origin, invested in assets located in free market democracies than somewhere else? Will this help insure the world's long-run prosperity and security as lenders or investors increase their stake in the success of currencies in markets in which they invest? Or, alternatively, will the situation take care of itself as a new equilibrium reoccurs when those managing huge pools of money and gigantic corporations succumb to inefficiencies of size, poor investment decisions, and the potential for corruption? What do you think?

Normally, the Olympic Games are a positive force in marketing. Worldwide marketing expenditures increase as official sponsors and unofficial free-riders attach themselves to the Olympic logo, to particular sports, national teams, or individual athletes. Global brands, in particular, see the Olympics and World Cup soccer as the two most important international sporting events; brand linkage to these events can boost brand awareness, preference, and sales over competitors who cannot afford the global sponsorship prices set by the International Olympic Committee.

This year, however, concerns over the Chinese government's role in Tibet, Sudan, and other alleged human rights abuses threaten to derail its plans to stage the Olympics as China's coming out party. Tight security in Beijing may take some of the fun out of the Games, not just for the sports fans and athletes but also for the sponsors.

Take Lenovo, for example. The fourth largest personal computer manufacturer in the world is the first and only Chinese company to be a global sponsor of an Olympics. Lenovo's investment in the Games is around $100 million. The company paid millions, along with Samsung and Coca-Cola, to sponsor the torch relay. Lenovo's sponsorship will doubtless reinforce its brand preference rankings in China. However, around the world, Lenovo hardly wishes to be known as the Chinese PC company that consumers find convenient to boycott.

Here are some trends I'm seeing among sponsoring companies:

First-time sponsors have a lot more to lose than long-term investors.

Lenovo, as a first-time global sponsor whose future depends heavily on success this year, has much more at stake than veteran Olympics sponsors such as Coca-Cola, Visa, and McDonald's. These companies are long-term investors in the Olympics; if Beijing fails to realize earlier commercial expectations, London in 2012 can make up for it. Around the world, the veteran sponsors may be careful not to over-identify with Beijing. They will emphasize sponsorships of national athletes and national teams rather than focus on the Olympic rings. But, in China, the Western multinationals will pursue a much more aggressive strategy. They will build goodwill for their brands by creating China-specific advertising and promotion programs that tap Chinese pride in hosting the Games.

"Two-faced" approaches.

Those companies that are not global sponsors of the Games will also take a two-faced approach, supporting the Games in China while being disinclined to associate with them in North American and European markets. Given the prominence of China as a supplier and customer, it is unlikely that we will witness grandstanding boycotts of the Games by any company. Most consumers around the world do not let their political views affect their purchase decisions. However, we are likely to see Web sites promoting boycotts of Chinese brands such as Haier, TCL, and Lenovo.

Late campaign purchasing as a safety hedge.

The International Olympic Committee continues to argue that the Games and the aspirations and achievements of individual athletes should be independent of politics. The reality is that the Chinese government has always intended to use the Games to its political advantage and that further escalations of violence in Tibet could diminish public support and lead to national team and individual athlete boycotts, as occurred in Moscow following the Soviet Union's invasion of Afghanistan. As a result, marketers are not over-committing funds to Olympics-related brand advertising and promotions, and the normal Olympics year advertising boost may be less than expected. Instead of long-term preset media advertising buys, many companies are planning short-term promotional bursts that they can activate as late as July and August if all appears to be in place for a successful, trouble-free Games.

Join the discussion on Harvard Business Online.

Sharpening Your Skills dives into the HBS Working Knowledge archives to bring together articles on ways to improve your business skills.

Questions to be Answered

• Does branding work for business-to-business marketing?
• Can individuals create their own brand?
• Should I trust my brand to a sports personality?
• How should I think about brand dilution?

Does branding work for business-to-business marketing?

B2B Branding: Does it Work?
Does it make sense for B2B companies to take a cue from consumer companies and invest in brand awareness? Many B2B CEOs say no, but HBS marketing professor John Quelch disagrees.

Key concepts include:

• Most B2B marketers cannot economically address thousands of small businesses using the traditional direct sales force.
• If left unattended, individual managers will each do their own ad hoc marketing.
• B2B marketers are realizing that developing brand awareness among their customers' customers can capture a larger share of channel margins and build loyalty that can protect them against lower-priced competitors.

Can individuals create their own brand?

The Case of the Mystery Writer's Brand
A look behind how professor John Deighton developed a case study of mystery writer James Patterson, who determines what his customers wants to read, then systematically churns it out in volume.

Key concepts include:

• Patterson regularly outsells other "brand-name authors" such as Stephen King by simply publishing more books.
• A former ad man, Patterson sometimes invests his own money in outlets such as television commercials and billboards that are more frequently used for fast food than books.
• Patterson represents a supplier who builds a persistent demand and designs production to perpetuate that brand's most enticing qualities.

Should I trust my brand to a sports personality?

Marketing Maria: Managing the Athlete Endorsement
Million-dollar endorsement deals were made and broken by how baseball players on the Boston Red Sox and Colorado Rockies performed in the 2007 World Series. HBS professor Anita Elberse discusses her research on sports marketing and her recent case on tennis powerhouse Maria Sharapova.

Key concepts include:

• On a global scale, total sports industry revenues are expected to be nearly $100 billion in 2007.
• The highest-paid athletes often make more money from endorsements and other commercial activities than from salary and winnings.
• Marketing executives value entertainment-related endorsements because of the difficulty of reaching a wide group of consumers using traditional advertising.
• Companies look to hire athletes whose image mirrors their own corporate brand.
• Sports agents and agencies must strategically manage these assets because their clients' professional careers are often short lived.

How should I think about brand dilution?

Porsche's Risky Roll on an SUV
Why would any company in the world want to locate in a high-cost, high-wage economy like Germany? Why would a sports car brand experiment with an SUV? Porsche's unusual answers in a globalizing auto industry have framed two case studies.

Key concepts include:

• Why would any company in the world want to locate in a high-cost, high-wage economy like Germany? Why would a sports car brand experiment with an SUV? Porsche's unusual answers in a globalizing auto industry have framed two case studies.
• Does location make a difference in a globalized world? Can products just be manufactured anywhere?
• Porsche's Cayenne manufacturing brings the company full circle in a return to its eastern European roots.