First Look

April 3, 2007

Creativity is the headliner in two new business cases this week. Wyeth Pharmaceuticals considers the extent to which decision making in a science-based business can take place according to numerical metrics. Similarly, the acclaimed string ensemble Medici Quartet, perhaps better known to music-minded managers for its performances of classical and contemporary music, may offer tips on organizational behavior and creative collaboration. Also new this week: a journal article about the transformation in college football that’s led to big changes in television viewership; another on the business, legal, and ethical implications of cultural profiling at work; and a case update on the strategy of supply-chain giant Li & Fung, which links thousands of factories in Asia to almost a thousand retailers in the U.S. and Europe.
— Martha Lagace

Working Papers

None this week


Cases & Course Materials

Common Agricultural Policy and the Future of French Farming

Harvard Business School Case 707-027

Presents the history and evolution of the EU Common Agricultural Policy, from early price supports to the 2003 decision to "decouple" payments to European farmers. Explores the logic behind agricultural supports, with a focus on the economic, political, and cultural context of French farming. Discusses efforts to reform the CAP in the context of the Doha Round of WTO negotiations against the backdrop of European enlargement.

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eClinicalWorks: The Paths to Growth

Harvard Business School Case 807-025

In January 2006, eClinicalWorks (eCW) had an acquisition opportunity that could fundamentally change the way they had done business since the inception of the company in 1999. eClinicalWorks was a privately run business in the healthcare information technology field that took in $25 million in revenue in 2005. Revenues for 2006 were projected to reach $40 million. This successful electronic medical record (EMR) company had grown thanks to their reliable software and responsive customer service. The company had achieved this growth without the help of any outside financing. The five co-founders of eCW, who treated each other like an extended family, invested years of sweat equity and hard work to shape eCW as they wanted. They were also proud of their company culture, which de-emphasized traditional company hierarchies and encouraged independent thinking and cooperative working arrangements across departments. Keeping the company private, in their view, had helped them to maintain this culture. The opportunity to acquire another EMR company offered eCW the chance to grow quickly in an industry that is estimated to take in more than $40 billion in overall revenues in 2007. But this acquisition would require outside financing of some sort. Was this the moment to accelerate the rate of growth to which eCW had become accustomed—catching up with, rather than anticipating, how their customer base would expand? Or should they maintain the same approach that had worked so well since 1999?

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Fred Khosravi and AccessClosure

Harvard Business School Case 806-044

Fred Khosravi is a serial medical device entrepreneur. In his latest venture, he must decide whether to sell now or continue to develop his current product and whether to market it, sell the company, or IPO.

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Hewlett-Packard Co.: The War Within

Harvard Business School Case 107-030

In September 2006 it was revealed that the Hewlett-Packard Company (HP) had been carrying out an extended investigation of its own employees, board members, and journalists outside the company. The investigation was launched in response to a series of leaks to the press that could only have come from highly placed members of the company. Fully understanding the context of the events of September, however, requires knowledge of board personalities and events that began under former CEO Carly Fiorina and continued thought the successful turnaround under her successor, Mark Hurd. As such, special focus is given to the individual board personalities and their conflicts over this time in order to fully explore the environment in which the investigation would later take place.

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Joseph Pulitzer

Harvard Business School Case 807-072

Biography of publisher and philanthropist Joseph Pulitzer.

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Li & Fung 2006

Harvard Business School Case 307-077

Describes the opportunities and strategy facing one of the most innovative global supply-chain companies, and the strategy it has chosen to deal with the expanding demand for its services. Li & Fung links thousands of factories in India, China, and elsewhere to nearly a thousand large retailers, primarily in the U.S. and Europe. It basically does the supply-chain job faster and more accurately with the aid of a sophisticated information system than anyone else.

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Nutricia Middle East: Measuring Sales Force Effectiveness

Harvard Business School Case 106-063

Nutricia's Middle East and African region is transitioning from a trading to a customer focus. CEO Ernest Vandenbussche must decide how to market infant milk formula most effectively in a region where the information environment is much less rich than in other countries/sectors and in which managers are concerned about measuring the effectiveness of their commercial actions. Among the most immediate decisions they need to make is the size of the salesforce—a decision that must be made in the context of a commercial strategy that is not yet fully defined. As Nutricia defines its strategy, it also has to define the strategic control systems it will use to monitor and fine-tune the strategy moving forward.

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Paul Robertson and the Medici String Quartet

Harvard Business School Case 607-083

Describes the approach to creative collaboration and leadership adopted by Paul Robertson as leader of one of the most highly regarded string quartets in recent history. Intended to prompt a discussion of a variety of issues surrounding management of creative ensembles. The topics discussed include: the nature and attainment of mastery (as opposed to technical competence); master and apprentice relationships; the details of collaborative work and workspace; and how to make preparations for world-class performances.

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Punjab and Kerala: Regional Development in India

Harvard Business School Case 707-008

Between 2000 and 2004, India's economy grew by 6.35 percent. Focuses on the states of Punjab and Kerala, which emphasized sharply different development strategies. The states had to decide whether to focus their investment efforts on physical capital or improving social indicators. Both states faced constraints in the form of budget deficits, competition from other states, and coordination with central government policies.

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South African Airways (A)

Harvard Business School Case 407-014

Amid efforts to engineer a turnaround at South African Airways (SAA), the CEO confronts an impending strike at the struggling company. How should the company address questions of distributive and procedural justice in post-Apartheid South Africa, and how should the CEO recover from a crucial misstep at the start of the strike? Chronicles the challenges and missteps of previous CEOs and the turnaround plan put in place by Ngqula to help curtail waste and abuse and capitalize on the growing international market.

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South African Airways (B)

Harvard Business School Supplement 407-024

Supplements the (A) case.

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St. HOPE Academy: The Expansion Decision

Harvard Business School Case 307-080

St. HOPE is faced with a decision concerning whether or not to expand from Sacramento to New York City. While charter schools are its largest area of activity, founder Kevin Johnson believes that all of St. HOPE's other activities—economic development, civic leadership development, and the arts—are interdependent with transforming urban education. Raises questions of growth, including the challenges of replicating a model developed specifically for one community to another neighborhood 3,000 miles away.

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Supplement to InfoVision (A): Technology Transfer at Georgia Tech

Harvard Business School Supplement 607-085

Supplements the (A) case.

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The Sweet Hereafter Summary: Reasoning from Personal Perspective

Harvard Business School Module Note 607-070

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Things Fall Apart Summary: The Challenge of New Principles

Harvard Business School Module Note 607-068

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Truman and the Bomb Summary: Balancing Benefits and Harms

Harvard Business School Module Note 607-075

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UBS and Climate Change—Warming Up to Global Action?

Harvard Business School Case 707-511

Marco Suter, Executive Vice-Chairman, UBS Board of Directors, carefully studied the chart on his desk. It showed the public commitment of major financial institutions to help mitigate global warming. Evidently, UBS lagged behind its competitors. The graph was part of a report that environmental specialists and senior executives at UBS had compiled. It suggested the company adopt a more progressive policy on climate change. Suter thought about the options that the working group had generated. These ranged from stabilizing the company's current carbon emissions to complete carbon neutrality. The UBS Corporate Responsibility Committee would meet early next week. Suter wondered which option he should support.

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Update: The Music Industry in 2006

Harvard Business School Case 707-531

The global recorded music industry was undergoing a major transition in 2006. Sales had been declining for a decade, and consumers were buying music in new formats and through different distribution channels. CD sales still accounted for the majority of revenues, but sales of music in digital formats (downloads, videos, ringtones) were growing significantly and accounting for approximately 10 percent of the industry's revenues in 2006. Many considered digital the future of the music business but the format posed both opportunities and challenges. While it had revitalized the singles market, for instance, digital had also facilitated rampant piracy. The music industry was retaliating, launching lawsuits against illegitimate peer-to-peer operators such as groups caught downloading illegally. Whether this would be enough to stop the trend was a matter of much debate. Meanwhile, the industry continued to consolidate. In 2004, Sony Music and BMG, the third- and fifth-largest record firms at the time, merged to form Sony BMG. Surprisingly, in 2006 the European Union's Court of First Instance annulled the merger—which the European Commission had approved two years earlier—after a group of independent music labels complained about the merger's effect on competition. While Sony and BMG were defending the merger in court, EMI Group plc wondered if its desired takeover of Warner Music Group—which it had been pursuing since 2000—would ever happen. If it did, how much business would the new entity have in the rapidly changing environment? All wondered how the industry would evolve.

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Urban Video Game Academy: Getting in the Game

Harvard Business School Case 807-122

Urban Video Game Academy was founded to enhance the academic and career prospects of urban youth. How will its founder grow it into a sustainable business? Provides an opportunity to discuss the challenges of social entrepreneurship and how to create a sustainable business model for a social venture.

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Wyeth Pharmaceuticals: Spurring Scientific Creativity with Metrics

Harvard Business School Case 607-008

Describes the reorganization of the drug discovery organization at Wyeth Pharmaceuticals and focuses on the decisions to: (1) centralize decision-making within drug discovery and (2) institute numerical metrics—jointly affecting all R&D scientists—for the progression of compounds through the Wyeth pipeline. Highlights issues concerning the degree to which scientific activity can be evaluated via numerical metrics, the extent to which R&D can be structured as a process, and the degree to which decision-making should be centralized in commercial R&D activities.

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Unraveling Yields Inefficient Matchings: Evidence from Post-Season College Football Bowls


Many markets have "unraveled" and experienced transactions at dispersed and apparently inefficiently early times. Often these markets develop institutions to coordinate and delay the timing of transactions. However it has proved difficult to gather data that allows the efficiency gains to be identified and measured. The present paper considers a market for which such data can be gathered.

Prior to 1992, college football teams were matched for post-season play, in "bowl" games, up to several weeks before the end of the regular football season. Since 1992, the market has undergone a series of reorganizations that postpone this matching until the end of the regular season. We show that the matching of teams affects efficiency as measured by the resulting television viewership. We also demonstrate that the reorganization has promoted more efficient matching of teams. The chief driver has been the increased ability of later matching to produce "championship" games.

Are Small Investors Naive About Incentives?


Security analysts tend to bias stock recommendations upward, particularly if they are affiliated with the underwriter. We analyze how investors account for such distortions. Using the NYSE Trades and Quotations database, we find that large traders adjust their trading response downward: they exert buy pressure following strong buy recommendations, no reaction to buy recommendations, and selling pressure following hold recommendations. This "discounting" is even more pronounced when the analyst has an underwriter affiliation. Small traders, instead, follow recommendations literally. They exert positive pressure following both buy and strong buy recommendations and zero pressure following hold recommendations. We discuss possible explanations for the differences in trading response, including information costs and investor naivete.

The Business, Legal, and Ethical Ramifications of Cultural Profiling at Work


This essay aims to address the costs and benefits of constraining cultural displays in the workplace on legal, business, and moral terms. In this article, we invite legal and organizational scholars to question the legitimacy of cultural profiling, the practice of actively monitoring workers' behavior to assess how well they embody the values of their employing organization and of penalizing those employees who engage in deviant cultural behaviors. First, we introduce the term "cultural profiling," distinguish it from other forms of profiling, and illustrate its occurrence in the workplace. Next, we discuss the underlying assumptions about identity performance and organizational culture that are used to justify formal and informal cultural profiling practices. We then review key arguments that support or challenge cultural profiling at work.

Post-Siliconix Freeze-Outs: Theory and Evidence


At approximately the same time that the Sarbanes-Oxley Act increased the costs associated with being a public company, important Delaware case law created a difference in the standard of judicial review for the two basic methods of freezing out minority shareholders. While a freeze-out executed as a statutory merger is subject to stringent "entire-fairness" review, the Delaware Chancery Court held in In re Siliconix Shareholders Litigation that a freeze-out executed as a tender offer is not. This paper presents the first systematic empirical evidence on post-Siliconixfreeze-outs. Using a new database of all Delaware freeze-outs executed in the 4 years after Siliconixwas decided, I find that minority shareholders achieve significantly lower abnormal returns, on average, in tender-offer freeze-outs relative to merger freeze-outs. I discuss the doctrinal and policy implications of these findings in a companion paper.



Board Structure, Mergers and Shareholder Wealth: A Study of the Mutual Fund Industry


We study mutual fund mergers between 1999 and 2001 to understand the role and effectiveness of fund boards. Some fund mergers—typically across-family mergers—benefit target shareholders but are costly to target fund directors. Such mergers are more likely when funds underperform and their boards have a larger percentage of independent trustees, suggesting that more-independent boards tolerate less underperformance before initiating across-family mergers. This effect is most pronounced when all of the fund's directors are independent, not the 75 percent level of independence required by the SEC. Higher-paid target fund boards are less likely to approve across-family mergers that cause substantial reductions in their compensation.