First Look

Abstract—Consumers readily indicate liking options that appear dissimilar—for example, enjoying both rustic lake vacations and chic city vacations or liking both scholarly documentary films and action-packed thrillers. However, when predicting other consumers’ tastes for the same items, people believe that a preference for one precludes enjoyment of the dissimilar other. Five studies show that people sensibly expect others to like similar products but erroneously expect others to dislike dissimilar ones (Studies 1 and 2). While people readily select dissimilar items for themselves (particularly if the dissimilar item is of higher quality than a similar one), they fail to predict this choice for others (Studies 3 and 4)—even when monetary rewards are at stake (Study 3). The tendency to infer dislike from dissimilarity is driven by a belief that others have a narrow and homogeneous range of preferences (Study 5).

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50152

Abstract—Negotiations can be fraught with emotion, but it’s only recently that researchers have examined how particular feelings influence what happens during deal making. Here the author shares some key findings and advice. Anxiety leads to poor outcomes. You will be less nervous about negotiating, however, if you repeatedly practice and rehearse. You can also avoid anxiety by asking an outside expert to represent you at the bargaining table. Anger is a double-edged sword. In some cases, it intimidates the other parties and helps you strike a better deal, but in other situations, particularly those involving long-term relationships, it damages trust and goodwill and makes an impasse more likely. To avoid or defuse anger, take a break to cool off or try expressing sadness and a desire to compromise. Disappointment can be channeled to reach a more satisfactory outcome. Before disappointment becomes regret, ask plenty of questions to assure yourself that you’ve explored all options. And don’t close the deal too early; you might find ways to sweeten it if you keep talking. Excitement isn’t always a good thing. Getting excited too early can lead you to act rashly and gloating about the final terms can alienate your counterparts. But if feelings of excitement, like other emotions, are well managed, everyone can feel like a winner.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50234

Abstract—For the past 20 years, the theory of disruptive innovation has been enormously influential in business circles and a powerful tool for predicting which industry entrants will succeed. Unfortunately, the theory has also been widely misunderstood, and the “disruptive” label has been applied too carelessly anytime a market newcomer shakes up well-established incumbents. In this article, the architect of disruption theory, Clayton M. Christensen and his coauthors, correct some of the misinformation, describe how the thinking on the subject has evolved, and discuss the utility of the theory. They start by clarifying what classic disruption entails—a small enterprise targeting overlooked customers with a novel but modest offering and gradually moving upmarket to challenge the industry leaders. They point out that Uber, commonly hailed as a disrupter, doesn’t actually fit the mold, and they explain that if managers don’t understand the nuances of disruption theory or apply its tenets correctly, they may not make the right strategic choices. Common mistakes, the authors say, include failing to view disruption as a gradual process (which may lead incumbents to ignore significant threats) and blindly accepting the “Disrupt or be disrupted” mantra (which may lead incumbents to jeopardize their core business as they try to defend against disruptive competitors). The authors acknowledge that disruption theory has certain limitations. But they are confident that as research continues, the theory’s explanatory and predictive powers will only improve.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50233

Abstract—Transportation Network Companies offer notable service advances—but do they comply with the law? And if not, how should the legal system respond? I offer some assessments, grounded in the competitive dynamics that may otherwise drive a race-to-the-bottom.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50203

Abstract—We link the corporate governance literature in financial economics to the agency cost perspective of corporate social responsibility (CSR) to derive theoretical predictions about the relationship between corporate governance and the existence of executive compensation incentives for CSR. We test our predictions using novel executive compensation contract data and find that firms with more shareholder friendly corporate governance are more likely to provide compensation to executives linked to firm social performance outcomes. Also, providing executives with direct incentives for CSR is an effective tool to increase firm social performance. The findings provide evidence identifying corporate governance as a determinant of managerial incentives for social performance and suggest that CSR activities are more likely to be beneficial to shareholders, as opposed to an agency cost.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50200

Abstract—Bundled payments—single payments that cover all the care for a patient’s medical condition or treatment over a specified timeframe—are increasingly being deployed to motivate the delivery of better patient outcomes at lower costs. Hoag Orthopedic Institute (HOI), a specialty orthopedic hospital in southern California, and the Rothman Institute (RI), a private-practice physician group in metropolitan Philadelphia, illustrate three keys for successful bundling: excellent data on outcomes and costs, proactive management of the patient, and alignment between physicians and hospitals.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50180

Abstract—Applying time-driven activity-based costing (TDABC) in health care cannot be delegated to the finance function. The most successful implementations have had strong executive support, exceptional clinical leaders, and dedicated, multi-disciplinary project teams. The paper describes the disciplined six-step process used by Mayo Clinic to use accurate cost information to enhance care delivery and realize cost efficiencies.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50183

Abstract—The goal of a health care system should be to deliver the most value to patients: the outcomes achieved for treating a medical condition relative to the costs incurred over a complete care cycle. We have found that a radar (spider web) chart is an effective means to visually depict outcome and cost data simultaneously. It provides clinicians, managers, patients, regulators, and policy makers with a readily understandable snapshot of the value being delivered for a specific medical condition and allows them to compare that value across alternative treatments, clinicians, and facilities.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50194

Abstract—Countless books and articles offer advice on avoiding missteps at the bargaining table. But some of the costliest mistakes take place before negotiators sit down to discuss the substance of the deal. That’s because they often take for granted that if they bring a lot of value to the table and have sufficient leverage, they’ll be able to strike a great deal. While negotiating from a position of strength is certainly important, many other factors influence where each party ends up. This article presents four factors that can have a tremendous impact on negotiation outcomes and provides guidance on what negotiators should be doing before either side starts worrying about offers, counteroffers, and bargaining tactics. Harvard Business School professor Deepak Malhotra advises negotiators to resolve process before substance, set expectations, map out the negotiation space, and control the frame. By following those steps, managers position themselves for success at the bargaining table.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50235

Abstract—Under increased pressure to report environmental impacts, some firms selectively disclose relatively benign impacts, creating an impression of transparency while masking their true performance. We identify key company- and country-level factors that limit firms' use of selective disclosure by intensifying scrutiny on them and by diffusing global norms to their headquarters’ countries. We test our hypotheses using a novel panel dataset of 4,750 public companies across many industries and headquartered in 45 countries during 2004–2007. Results show that firms that are more environmentally damaging, particularly those in countries where they are more exposed to scrutiny and global norms, are less likely to engage in selective disclosure. We discuss contributions to the literature that spans institutional theory and strategic management and to the literature on information disclosure.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50187

Abstract—This paper develops a quantitative dynamic general equilibrium model in which households' preferences for safe and liquid assets constitute a violation of Modigliani and Miller. I show that the scarcity of these coveted assets created by increased bank capital requirements can reduce overall bank funding costs and increase bank lending. I quantify this mechanism in a two-sector business cycle model featuring a banking sector that provides liquidity and has excessive risk-taking incentives. Under reasonable parametrizations, the marginal benefit of higher capital requirements related to this channel significantly exceeds the marginal cost, indicating that U.S. capital requirements have been suboptimally low.

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Abstract—Government agencies are increasingly turning to private, third-party monitors to inspect and assess regulated entities’ compliance with law. The integrity of these regulatory regimes rests on the validity of the information third-party monitors provide to regulators. The challenge in designing third-party monitoring regimes is that profit-driven private monitors, typically selected and paid by the firms subject to monitoring, have incentives to downplay problems they observe in order to satisfy and retain their clients. This paper discusses the most important factors that our research and the research of many others has shown can affect the integrity of third-party monitoring and highlights some policy implications for regulators designing third-party monitoring regimes.

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Abstract—Using detailed data on recipients of bachelor's degrees from MIT between 2006 and 2012, I examine the selection of students going into finance or science and engineering (S&E). I find that academic achievement in college is negatively correlated with a propensity to take a job in finance and positively correlated with a propensity to pursue a graduate degree or taking a job in S&E. This pattern is primarily driven by differences in skill development during college, not by differences in academic qualifications at college entry. In both high school and college, the two groups participate in different activities: students who ultimately choose finance are substantially more likely to be varsity-sports leaders in high school; they are also more likely to join fraternities and sororities, a decision typically made at college entry. Sizable differences in academic performance begin in freshman year and persist throughout college. The 2008 financial crisis, which substantially reduced the availability of entry-level positions in finance, prompted some students with relatively low college-entry qualifications to major in S&E instead of management or economics and/or to improve their academic performance. But there is no evidence that those with top qualifications changed their skill development in response to the crisis. Taken together, the results demonstrate that the preferences and skills of graduates who pursue finance are not comparable to those of graduates who choose a career in S&E.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=50225

Under the leadership of artistic director Wynton Marsalis, Jazz at Lincoln Center (JALC) hosts performances and education events year-round for audiences in New York and across the United States. Despite the popularity of JALC's events, however, the U.S. audience for jazz is small and aging relative to other music genres. This case asks students to apply marketing principles to the challenge that JALC faces in seeking to expand the reach of and appreciation for jazz music despite a shrinking audience. The case features a multimedia format of audio and video clips in order to engage students directly with JALC protagonists and with jazz music—the real protagonist of the case. The case is ideal for a first year marketing course and is also suitable for courses in branding, nonprofit management, and arts and culture management.

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The global consumer goods company Unilever was on pace to hit a number of aggressive targets by 2020 as part of the Unilever Sustainable Living Project, including a goal to halve the waste associated with the disposal of its products. Unilever's chief supply chain officer Pier Luigi Sigismondi and his team were working towards this goal and had chosen to first focus on three key areas—sugar, tomatoes, and tea—and had analyzed where in the “farm to fork” value chain product was wasted. This analysis showed that very little was wasted within areas of the value chain directly controlled by Unilever, and most occurred either upstream with its suppliers or downstream with consumers. How could Unilever encourage these actors to change established practices and entrenched behaviors within a short timeframe to help Unilever meet its sustainability targets and also to improve the operations of its partners in the value chain? By encouraging consumers to better manage their food purchases, did Unilever risk harming its own sales or those of its retail customers? Could Unilever encourage industry-wide changes to have a real impact on global environmental sustainability?

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In 2012, Anna Haupt and Terese Alstin, co¬founders of the Hövding company, reflect on the evolution of their venture and the way forward. Since 2005, Haupt and Alstin had been working on a new type of bicycle helmet—an "airbag for cyclists." What had begun as a thesis had grown into a seven-year journey of research and development, including raising over $10 million of venture capital. The product had been granted Europe's CE certification in 2011 and had been launched simultaneously in Sweden and Norway. Yet, a year later, the company had still not reached the break¬even point. To help them establish a commercialization strategy, the Hövding board had prevailed upon the founders to hire a professional CEO. But surrendering management control was an emotional process for Haupt and Alstin, while the CEO struggled to assert his leadership and build the company's commercial capabilities. Should Haupt and Alstin collaborate with their CEO despite their misgivings, or should they step away from the company they had dedicated seven years to building?

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This case was written as an update to the case "The National Geographic Society," HBS No. 311-002, published in 2011. The (B) case describes the 2015 creation of National Geographic Partners, a for-profit joint venture between the National Geographic Society and 21st Century Fox. It describes the basic structure and terms of the deal as well as diverse reactions to it.

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This case investigates both micro and macro issues around strategic human capital development. First, it explores how Egon Zehnder, a leading global search and advisory firm, assesses talent in the firms for which it works. The case discusses the deployment of a unique potential model that substantially shifts how the company views individuals. Within this framework, Mary Caroline Tillman, the case protagonist, is faced with an evaluation decision between two candidates who have different competencies, past experience, and potential. Second, the case explores the macro issues of running a professional services firm. The case presents an opportunity to examine how and if the organization can change its focus to include more assessment opportunities.

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In July 2007, after several failed attempts to acquire Huntsman Corporation, Hexion/Apollo prevailed in a bidding war for the company and signed a definitive merger agreement. Apollo had down bid Huntsman during previous attempts to acquire the company, and Huntsman was suspicious. That suspicion, coupled with Huntsman's leverage that resulted from a competitive bid situation, prompted and enabled Huntsman to negotiate seller friendly terms. For example, there was no financing contingency, and although the merger agreement contained both a material adverse effect (MAE) clause and a reverse termination fee, the potential damages if Hexion/Apollo breached the agreement were uncapped. As the credit markets deteriorated in late 2007 and into 2008 and Huntsman turned in disappointing financial results, the Huntsman deal no longer looked attractive to Hexion/Apollo. Hexion/Apollo wanted out. Would the material adverse change (MAC) clause in the merger agreement permit Hexion/Apollo to simply walk away? Even if the MAE clause were not applicable, could Hexion/Apollo walk away by paying the reverse termination fee? Or were potential damages uncapped?

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To be used with “Hexion/Apollo's Courtship of Huntsman Corporation (A)” HBS No. 316-028.

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This note teaches the critical elements to understand the fundamentals of hotel investing, ownership, and management. It outlines the basics of hotel segmentation, operations, ownership, management, and valuation. The changing impact of technology is also addressed.

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When Dalian Wanda Group of China announced its plan to acquire the AMC Entertainment theatrical exhibition chain in the United States, many people in the U.S. were mystified. Unlike China where theatrical exhibition was experiencing rapid growth, the U.S. market was viewed as mature, and rapidly changing technology was giving consumers a widening range of choices for movie viewing. AMC was owned by a group of private equity firms, and their pessimistic view of the industry influenced their strategies and investment decisions. AMC's management team had yet a different view on the prospects of the industry. Thus three present or potential stakeholders, all looking at the same data, had distinctly different views of future prospects. How could this be? The (B) case looks at AMC's performance in the year after the acquisition.

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Supplements the (A) case.

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Is government the biggest, worst customer in the world? And is that a reason for venture investors to back companies that sell to government or to stay away? It had been seven years since Scott Burns joined his friend Zach Stabenow to get a company called GovDocs off the ground. In that time, they had evolved from a provider of government-mandated labor law posters to the country's largest sender of government-to-citizen emails. GovDelivery, as the company became known, was one of the first companies to move governments into the cloud; one of the first to sell them software as a service (SaaS); and in 2007, the only one with 3 million citizens registered to use its platform to receive communications from federal, state, regional, and city governments and public authorities. In those seven years, Burns had raised capital from many sources: friends and family, angel investors, strategic partners, banks, and the investment arm of a major family fund. He and Stabenow had also grown the business through operating revenue and by keeping a tight watch on costs. They had to. Because growth capital had come in from almost all corners, expect one: major venture firms. Now, with roughly $6 million in annual revenue, and projections to double that within three years, Burns was prepping for discussions with half a dozen Tier 1 firms. In doing so, he was anticipating what he thought would be the "elephant in the room." GovDelivery's business-to-government revenue model had been a conversation-stopper with major investors looking at Burns' company and companies like it. What would he tell potential backers?

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