First Look

April 18, 2017

Among the highlights included in new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

A traditional offline business learns from big data

In the Harvard Business Review article How the Water Industry Learned to Embrace Data, authors Frank V. Cespedes and Amir Peleg explore how data analytics are being used in a decidedly non-digital business: the water industry.

Interest rate conundrums

Periods in which short-term and long-term interest rates move in opposite directions have become more common since 2000, according to new research by Samuel G. Hanson, David O. Lucca, and Jonathan H. Wright. Their working paper Interest Rate Conundrums in the Twenty-First Century “discusses implications for interest rate predictability, the transmission of monetary policy, and the validity of high-frequency event study approaches for assessing the impact of monetary policy.” The paper was published in Federal Reserve Bank of New York Staff Report.

De Beers looks beyond diamonds in the rough

The new case study The De Beers Group: Exploring the Diamond Reselling Opportunity listens in as executives decide whether to take De Beers into new lines of businesses, such as pre-owned diamonds or polished diamonds. The case was written by Benjamin C. Esty, Daniel P. Gross, and Lauren G. Pickle.

A complete list of new research and publications from Harvard Business School faculty follows.

by Sean Silverthorne
  • March 27, 2017
  • Harvard Business Review

How the Water Industry Learned to Embrace Data

By: Cespedes, Frank V., and Amir Peleg

Abstract—Most current talk about “big data” seems to assume the disintermediation or replacement of physical assets by digital technologies. But a bigger and more impactful trend is the use of online tools to improve physical asset utilization in many traditional off-line businesses. This article discusses the water industry as an example, and the organizational changes and levers relevant to extracting value from emerging data-analytics technologies.

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  • 2017
  • The Palgrave Handbook of Organizational Change Thinkers

Paul R. Lawrence: A Career of Rigor, Relevance, and Passion

By: Tushman, Michael

Abstract—Paul R. Lawrence was one of the earliest and most influential figures in the emergence of organizational behavior as a field of study. He was a pioneer in creating a body of work on organization design, leadership, and change in both the private and public sectors. Lawrence’s professional work was rooted in an aspiration to do work that was rigorous, relevant to practicing managers, and of service to society. Beyond his research, Lawrence was committed to building the field of organizational behavior at HBS and more broadly in our profession. He had a lifelong passion for participant-centered learning and for the training of doctoral students.

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Interest Rate Conundrums in the Twenty-First Century

By: Hanson, Samuel G., David O. Lucca, and Jonathan H. Wright

Abstract—A large literature argues that long-term interest rates appear to react far more to high-frequency (e.g., daily or monthly) movements in short-term interest rates than predicted by the standard expectations hypothesis. We find that, since 2000, such high-frequency "excess sensitivity" remains evident in U.S. data and has, if anything, grown stronger. By contrast, the positive association between low-frequency changes (e.g., at a 6-month or 12-month horizon) in short- and long-term interest rates, which was quite strong before 2000, has weakened substantially in recent years. As a result, "conundrums"—defined as 6- or 12-month periods in which short rates and long rates move in opposite directions—have become far more common since 2000. We argue that the puzzling combination of high-frequency excess sensitivity and low-frequency decoupling between short- and long-term rates can be understood using a model in which (i) shocks to short-term interest rates lead to a rise in term premia on long-term bonds and (ii) arbitrage capital moves slowly over time. We discuss the implications of our findings for interest rate predictability, the transmission of monetary policy, and the validity of high-frequency event study approaches for assessing the impact of monetary policy.

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  • Harvard Business School Case 517-056

Godiva Japan: Think Local, Scale Global

This case tracks Jerome Chouchan’s strategies and execution for a successful turnaround of Godiva Japan’s operations, which were experiencing a decline in sales when he became the managing director of the company in 2010. Through various initiatives and innovations, Godiva Japan had targeted a variety of demographic segments in different sales points, acquired new customers, and created a moment of luxurious consumption for all ages. Accordingly, within Godiva’s global enterprise, Godiva Japan had become number two in worldwide sales and number one in profits. It exported made-in-Japan products and concepts to Godiva’s other markets. How could Chouchan keep the momentum and sustain Godiva Japan’s top-line and bottom-line growth going forward? Would he be able to keep the balance between aspirational and accessible? How much of the success in Japan might contribute to the growth of Godiva's global sales?

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  • Harvard Business School Case 817-064

SEAS and HBS in Allston

The case describes opportunities for and barriers to collaboration between the Harvard School of Engineering and Applied Sciences (SEAS) and Harvard Business School as SEAS prepares to move two-thirds of its faculty and classes to a new campus in Allston, 1.5 miles from its current Cambridge location. Companion cases (“SEAS in 2016,” HBS No. 817-063, and “HBS in 2016,” HBS No. 817-062) provide background on the two schools.

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  • Harvard Business School Case 217-021

Bayer AG: Bidding to Win Merck's OTC Business

Shortly after submitting their best and final offer to acquire Merck's Consumer Care Division (a collection of "over-the-counter" (OTC) products with sales totaling $2 billion), the Bayer M&A team was given a chance to revise their bid because another potential acquirer—likely Reckitt-Benckiser, a UK-based company that had outbid them in a few prior acquisition auctions—had submitted a last-minute offer to Merck. Frank Rittgen (head of M&A) and Werner Baumann (CFO) have to decide whether to increase the cash portion of their $14.2 billion offer and/or amend the terms of a proposed joint venture (JV) with Merck involving cardiovascular drugs that had been included in their offer as a way to "sweeten" the deal. Under the current terms of the proposed JV, Merck would pay Bayer $1 billion upfront for access to their pipeline of drugs and could pay up to another $1.2 billion in contingent payments based on actual sales. Alternatively, the Bayer team could hold fast on both fronts and let their final bid stand. With only an hour to make a decision regarding one of the industry's "transformational assets," the Bayer team had to move quickly and carefully as they were determined not to overpay for the asset.

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In September 2014, Tom Montgomery (SVP of strategic initiatives at the De Beers Group) and his team launched a pilot program in the United States to explore the $1 billion diamond market for pre-owned (recycled) diamonds. According to Montgomery, the motivation for the pilot program was to improve the consumer reselling experience and to enhance "diamond equity." Somewhat paradoxically, consumers typically received very low prices when they tried to sell diamonds (5-20% of the original retail price) leaving them reluctant to purchase diamonds in the future and making them into ambassadors of ill will. At a meeting scheduled for November 2015, the De Beers Executive Committee would have to decide whether to end the pilot program, extend it for another year to gather more information, or convert it into a new standalone business unit. Because De Beers had historically focused on producing rough diamonds (the "upstream" business), yet the new business unit offered an opportunity to enter and enhance the market for polished diamonds (the "downstream" business), the decision was particularly noteworthy.

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This note provides an overview of three key healthcare IT areas: electronic medical records and electronic health records, revenue cycle management, and telemedicine. This note also contains a glossary of key terms and acronyms in this space as well as exhibits detailing unit economics, market dynamics, and key players.

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No abstract available.

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  • Harvard Business School Case 217-050

Exotic Interest Rate Swaps: Snowballs in Portugal

This case explores a complex swap transaction implemented by Metro do Porto in 2007. It represents an opportunity to study fixed income derivative instruments, such as plain-vanilla swaps and structured swaps, as well as understand the opportunities and challenges of using innovative financial instruments. The public sector setting allows discussion of the political economy implications of such transactions.

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  • Harvard Business School Case 717-464

Danaher Corporation, 2007–2017

On July 2, 2016, Danaher Corporation completed the spinoff of Fortive Corporation. The previous day, Danaher’s stock price had reached an all-time high. In 2015, Danaher had decided to split off its test and measurement, fuel and fleet management, and automation businesses, leaving the “new Danaher” focused on life sciences, diagnostics, dental, water quality, and product-identification businesses. It was hardly the first industrial conglomerate to spin off major divisions; Tyco International PLC, ITT Corporation, Illinois Tool Works, Johnson Controls, and Ingersoll-Rand PLC had made similar moves in recent memory. However, its peers had often experienced declining profitability or pressure from activist investors. Danaher, by contrast, had performed strongly in the years leading up to the spinoff. It had spent the previous decade strengthening its portfolio in sectors such as life sciences and dental products with acquisitions including Beckman Coulter in 2011, Nobel Biocare Holding AG in 2014, and Pall Corporation in 2015.

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  • Harvard Business School Case 717-459

The Six CEOs of Tyco International Ltd.

In September 2016, Johnson Controls, Inc. completed the acquisition of Tyco International PLC, a $9.9 billion business with operating profits of $884 million. The purchase consideration was $14.4 billion. Although the deal was billed as a merger, Ireland-based Tyco effectively acquired U.S.-based Johnson Controls in a tax inversion deal that saved $150 million a year in taxes. Operating synergies were estimated at $500 million over three years. Tyco International was all that remained of what 15 years earlier, in 2001, had been a $36.4 billion conglomerate with a market capitalization of $120 billion. It took the charismatic CEO, Dennis Kozlowski, 10 years to grow the business from $3 billion to $36 billion, increasing its value by more than 60 times along the way. But Kozlowski went to prison on fraud charges in 2005, and the portfolio was slowly unwound under his successor. Now in 2016, Tyco was to disappear.

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