First Look

April 1, 2014

Help Your Negotiation Rival Sell The Deal

Negotiations rarely end when a deal has been struck. Negotiators also need to get buy-in from stakeholders. A working paper by James K. Sebenius, Better Deals Through Level II Strategies, details why and how negotiators should help the other side with their constituency challenges. This help can come in the form of anything from shaping the form of the agreement to providing ingredients the other side can use in a "victory speech."

When Network Ties Work Against The Entrepreneur

Research literature is chockablock with findings proclaiming the benefits for entrepreneurs who use network ties to promote growth. A recent paper explores potential drawbacks—especially when intermediaries leak information to competitors. Emily Cox Pahnke, Rory McDonald, and Dan Wang detail relationships that went wrong between VCs and medical device firms in the minimally invasive segment. Read, The Liability of Leakage: How Indirect Ties to Competitors Impact Innovation in Entrepreneurial Firms.

How Emirates Airline Built The Third Largest Airline

A case study by Juan Alcácer and John Clayton explores the geography-driven strategy used by Emirates Airline to become a powerhouse. Students are asked to "evaluate if the airline's strategy will be sustainable as Emirates faces technical and political challenges to expand and must compete with numerous new players from the Middle East," according to the case summary.

— Sean Silverthorne


  • August 2013
  • Delaware Journal of Corporate Law

Delaware's Choice

By: Subramanian, Guhan

Abstract—This article first documents the shift to annual elections of all directors at most U.S. corporations and argues that the alternative of "ineffective" staggered boards would have been more desirable, as a policy matter, but is now a missed opportunity. Using this experience on staggered boards as a motivating case study, the article then examines a policy choice regarding Section 203 of the Delaware corporate code. Four facts are uncontested: (1) in the 1980s, federal courts established the principle that Section 203 must give bidders a "meaningful opportunity for success" in order to withstand scrutiny under the Supremacy Clause of the U.S. Constitution; (2) federal courts upheld Section 203 at the time, based on empirical evidence from 1985 to 1988 purporting to show that Section 203 did in fact give bidders a meaningful opportunity for success; (3) between 1990 and 2010, not a single bidder was able to achieve the 85% threshold required by Section 203, thereby calling into question whether Section 203 has in fact given bidders a meaningful opportunity for success; and (4) perhaps most damning, the original evidence that the courts relied upon to conclude that Section 203 gave bidders a meaningful opportunity for success was seriously flawed-so flawed, in fact, that even this original evidence supports the opposite conclusion: that Section 203 did not give bidders a meaningful opportunity for success. The constitutionality of Section 203 is therefore "in play," and, with the decline of the poison pill, a constitutional challenge against Section 203 will eventually come. Delaware could avoid this showdown by lowering Section 203's 85% threshold to 70%. Like the middle-ground approach on staggered boards, this amendment-to a single number-would also represent good policy: facilitating high-premium offers that attract a supermajority of disinterested shares, but also providing companies with reasonable insulation against opportunistic low-ball offers.


Working Papers

The Effect of Management Control Elements on Coordination

By: Bormann, Sara, Jan Bouwens, and Christian Hofmann

Abstract—This study examines how control elements of a firm affect coordination among profit centers. The firm operates a network of 59 profit centers. It uses a transfer-pricing system designed to account for interdependencies between profit centers and to induce coordination. Further, profit center managers are incentivized with own-level residual income measures. The use of the latter measure would lead managers to make decisions benefiting their performance irrespective of whether these decisions negatively affect other profit centers. However, the firm implemented a third system that would potentially lead managers to benefit other profit centers. The firm established regional clusters of profit centers that meet at least once every quarter. The creation of these clusters creates proximity as profit centers perform complementary activities, making it more beneficial for them to coordinate. Our findings suggest that self-centered choices by profit centers are mitigated as proximity within a cluster increases. Additionally, we find evidence that proximity is positively associated with coordination and overall performance.

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Abstract—Prior research examines how firms compete effectively in established markets. This study investigates new markets and traces how entrepreneurial rivals in such a market search for a successful strategy. Through an in-depth, multiple-case study of firms in the nascent online-investing market, we induce a theoretical framework to explain how firms win the race to find a viable business model. As the new market emerged, high-performing firms enacted three strategies in sequence that helped them achieve their objective quickly and efficiently. First, their executives focused primarily on substitutes but copied from rivals. Next, they actively tested their assumptions and made major resource commitments to the business model they identified as the most lucrative. Finally, they deliberately maintained a loosely structured organizational activity system in order to continue to accommodate emergent sources of value. For these firms, competition resembled neither economic rivalry nor collective action but a logic of interaction akin to parallel play. The resultant middle-range theory has implications for research on entrepreneurial competition in new markets and on the organizational processes of developing a business model.

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Abstract—This paper investigates the impact of early relationships on entrepreneurial firm innovation. Prior research has largely focused on the benefits of network ties, documenting the many advantages that accrue to firms embedded in a rich network of inter-organizational relationships. In contrast, we build on competitive interaction research to consider potential drawbacks and emphasize how competitive exposure, enabled by powerful intermediaries, can inhibit innovation. We develop a conceptualization of information leakage that occurs when firms are indirectly tied to their competitors through these shared intermediary organizations. To test our theory, we examine every relationship between entrepreneurial firms and their venture capital investors in the minimally invasive surgical segment of the medical device industry over a 22-year period. The theory and evidence provide novel insights for entrepreneurship research while contributing to the literatures on innovation and competition through networks.

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Abstract—Many negotiators have constituencies that must formally or informally approve an agreement. Traditionally, it is the responsibility of each negotiator to manage the internal conflicts and constituencies on his or her own side. Far less familiar are the many valuable ways that one side can meet its own interests by helping the other side with the other's "internal," "behind-the-table," or "Level II" constituency challenges. Sebenius (2013) offered a moderately theoretical treatment of this challenge. Moving from theory to practice and from simple to complex, the present paper builds on that work. It illustrates several classes of practical measures that negotiators can use to advance their own interests by focusing on the other side's Level II negotiations. Beyond tailoring the terms of the deal for this purpose (e.g., with "compensation provisions"), one side can help the other, and vice versa, via a number of devices, alone or in combination. These include a) shaping the form of the agreement (e.g., tacit v. explicit, process v. substantive); b) tailoring the form of the negotiating process itself (to send a useful signal to constituencies); c) avoiding (or making) statements that inflame (or mollify) the other side's internal opponents; d) helping the other side attractively frame the deal for Level II acceptability; e) providing the ingredients for the other side to make an acceptance or even "victory speech" about why saying "yes" to the deal you want is smart and in the other side's interests; f) constructive actions at the bargaining table informed by knowledge of the other side's internal conflicts (e.g., not escalating when the other side mainly speaks for domestic purposes); g) having the first side work with the other side to tacitly coordinate outside pressure on the other side's Level II constituents to accept the deal that the first side prefers; and h) in extraordinary cases, by directly negotiating with one's counterparts to design measures that thwart its Level II opponents.

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Abstract—Using data from a novel laboratory experiment on complex problem solving in which we varied the network structure of 16-person organizations, we investigate how an organization's network structure shapes performance in problem-solving tasks. Problem solving, we argue, involves both search for information and search for solutions. Our results show that the effect of network structure is opposite for these two important and complementary forms of search. Dense clustering encourages members of a network to generate more diverse information but discourages them from generating diverse theories: in the language of March (1991), clustering promotes exploration in information space but decreases exploration in solution space. Previous research, generally focusing on only one of those two spaces at a time, has produced inconsistent conclusions about the value of network clustering. By adopting an experimental platform on which information was measured separately from solutions, we were able to reconcile past contradictions and clarify the effects of network clustering on problem-solving performance. The finding both provides a sharper tool for structuring organizations for knowledge work and reveals the challenges inherent in manipulating network structure to enhance performance, as the communication structure that helps one antecedent of successful problem solving may harm the other.

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Abstract—Does the degree to which founders keep control of their startups affect company value? I argue that founders face a "control dilemma" in which a startup's resource dependence drives a wedge between the startup's value and the founder's ability to retain control of decision making. I develop hypotheses about this tradeoff and test the hypotheses on a unique dataset of 6,130 American startups. I find that startups in which the founder is still in control of the board of directors and/or the CEO position are significantly less valuable than those in which the founder has given up a degree of control. On average, each additional degree of founder control (i.e., controlling the board and/or the CEO position) reduces the value of the startup by 23.0% to 58.1%.

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Cases & Course Materials

  • Harvard Business School Case 714-432

Emirates Airline: Connecting the Unconnected

Narrates the story of Emirates, an airline founded in 1985 in Dubai that by 2013 was among the three largest commercial airlines in the world. The case emphasizes how Emirates capitalized on its location-a small city-state strategically located to reach ¾ of the world's population in a flight of less than eight hours-to build a fast-growing and profitable hub-based business model. The case details how Emirates' chooses new routes, technology, and equipment and manages its human resources, marketing and branding, and government relationships-together forming an internally consistent strategy that capitalizes on opportunities across geographic markets. Importantly, students are asked to evaluate if the airline's strategy will be sustainable as Emirates faces technical and political challenges to expand and must compete with numerous new players from the Middle East.

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In April 2013, Ford Asia Pacific & Africa (FAPA) was examining its options for e-coating service metal parts for the Ford Customer Service Division in Sanand, Gujarat, India. Randy Creel, director of parts supply & logistics, FAPA, worked with his colleagues in the U.S., UK, China, and India to conduct analysis and develop three options: outsourcing e-coating to a third party in Sanand, outsourcing e-coating to a third-party in Chennai and transporting the parts to Sanand, or building a stand-alone facility in Sanand. Factors like cost, quality, speed, and risk needed to be considered for this decision, which had impact on profitability and customer satisfaction. Which option should FAPA choose?

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The case reveals that Ford decided to open its own e-coating plant in Gujarat, India, and details how the decision was made at different organizational levels.

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  • Harvard Business School Case 910-023

Roll Back Malaria and BCG: The Change Initiative

Roll Back Malaria (RBM), a global partnership dedicated to fighting malaria, has not met its founders' expectations of effectively combating malaria. In 2005, after several internal evaluations, RBM leadership has decided to engage the Boston Consulting Group (BCG) to work on a Change Initiative that when completed will enable RBM to address the eradication of malaria both more effectively and through larger scale efforts. However, the Initiative has become derailed after BCG's first major presentation to the RBM board. Will this end the Change Initiative prematurely?

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  • Harvard Business School Case 914-037

Setting Price Effectively

Price is one of the most powerful instruments a manager can use to influence the take-up of her product, especially in a subsidized and noncompetitive market as is common for global health products. However, the question of whether and how to price has been the subject of extensive policy debate: whether to charge users for life-saving health products and services, whether to distribute them for free, or whether to give additional incentives for individuals to use them. This note describes the latest, cutting-edge research on how pricing influences the end user's decision to purchase and use vitally needed health products, opening a deeper and informed dialogue about pricing. The note concludes with a succinct guide of how to optimally price products based on different organizational goals and product characteristics.

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  • Harvard Business School Case 514-054

Diageo: Innovating for Africa

Diageo, the world's leading premium drinks business, had a long history in Africa starting from its beer brand Guinness first exported to Sierra Leone in 1827. By 2013, 13% of Diageo's global revenues were from Africa, up from 9% in 2007. Diageo Africa President Nick Blazquez was considering how to seize the opportunities presented by rising populations and incomes while navigating increased competition and the unique challenges presented by frontier markets. The case describes Diageo's innovation process and two recent product launches developed specially for Africa. It also discusses government relations and the need to develop local production and raw material supply chains.

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  • Harvard Business School Case 814-001


No abstract available.

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  • Harvard Business School Case 914-412


Beidahuang is a major new Chinese player in global grain trading that in 2013 is seeking access to grain both to help assure China's food security and to pursue its own commercial goals. Focusing on potential trade in Brazilian soybeans, the case asks students to re-evaluate the role of agricultural cooperatives in the global trading system and to assess what sort of model Beidahuang can create to capitalize on current industry trends while remaining true to its character as a leading Chinese agricultural grower and distributor.

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  • Harvard Business School Case 314-017

Innovating in Health Care-Framework

Contains the framework for the second-year Innovating in Health Care course. Delineates the role of six exogenous forces on new ventures: structure, financing, consumers, accountability, technology, and public policy. Also, presents the essential elements of business models for new health care ventures.

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  • Harvard Business School Case 313-015


Would the advent of global payment models and ACOs create sufficient demand for a telemedicine offering covering the care continuum from hospitals to the home? This was the decision facing Royal Philips Electronics (Philips), the Netherlands-based producer of lighting, consumer electronics, and health care products, in 2012. Philips already offered several remote monitoring systems for hospitals, including the eICU, which it obtained through the 1998 acquisition of Visicu. In the eICU model, patients in hospital ICUs were monitored using bedside devices, which transmitted patient data to a remote station from which clinicians monitored and directed care as needed. The model aimed to improve care quality by enabling early interventions and reducing adverse events and to cut costs by allowing clinicians to care for a larger number of patients. Building on this and other offerings in its portfolio, including numerous home care devices, Philips could extend this model to create an integrated remote monitoring offering managed through a centralized clinician-staffed station. In doing so, it could gain a deep and early foothold with ACOs and position itself as a leader in telemedicine-enabled care. However, U.S. telemedicine adoption to date was slow, in part due to insufficient cost-effectiveness evidence, and ACOs-the likely target customer-remained underdeveloped. Philips would also contend with a complex selling process and numerous operational challenges. Was it too early to invest? And, if not, which were the ideal ACO beta sites?

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  • Harvard Business School Case 514-059

E-Cigarettes: Marketing Versus Public Health

Electronic cigarettes (e-cigarettes) were heralded by some as a healthcare game changer, enabling smokers to switch to a new product that carried a lower risk of cancer. However, there were concerns about the public health risk of e-cigarettes, particularly the chance that teens would easily develop nicotine addictions from smoking the fruit-flavored products. Manufacturers argued that current smokers, not teens, were the target market, but laws regulating e-cigarettes were far less stringent than those governing tobacco products.

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  • Harvard Business School Case 713-533

Strategy and the Strategist

This short case presents students with a series of brief accounts, observations, and quotations that challenge them to think about the role of the CEO-and of his/her potentially strong beliefs or convictions-in strategy. It focuses in particular on three issues and their practical implications: 1) Does it matter whether the strategy reflects the beliefs of the CEO and the management team or not? 2) Does it matter whether the CEO or management team have strong beliefs or not? 3) Why do people tend to develop strategies in line with their background and past successes, and what are the implications of such "bias"?

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  • Harvard Business School Case 814-095

Founder-CEO Succession at Wily Technology (B)

Supplements the (A) case.

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