First Look

January 2, 2018

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

Hulu: The case study

A new case by Henry McGee and Christine Snively explores the beginnings of Hulu TV as it attempts to upset the traditional cable TV order. How could the upstart possibly take on some of the most powerful companies in the entertainment industry? Hulu: Redefining the Way People Experience TV.

The country where big business helped create environmental controls

Unlike the United States, where business and government were often in opposition over environmental policy in the 1960s and beyond, businesses in Sweden emerged as a government partner, according to a new working paper. "... collaboration with the Swedish government was seen as instrumental and joint R&D was regarded as a means to share knowledge and costs," according to reseachers Ann-Kristin Bergquist and Kristina Söderholm. Business and Green Knowledge Production in Sweden 1960s–1980s.

Why isn't health care delivery more efficient?

Amitabh Chandra and Douglas O. Staiger search for causes that produce a wide variety of treatment outcomes across hospitals serving similar patients. Identifying Sources of Inefficiency in Health Care.

Other new publications from Harvard Business School faculty are listed below.

— Sean Silverthorne
  • December 4, 2017
  • Harvard Business Review

How a Fast-Growing Startup Built Its Sales Team for Long-Term Success

By: Cespedes, Frank V., and David Mattson

Abstract—It’s common for leaders of sales teams to focus almost exclusively on short-term tactics and current operations while failing to think and act in a way that supports the longer-term needs of their businesses—and it’s hard to fault them. The biggest problem with a short-term approach is that managers develop blind spots around crucial processes such as recruiting, hiring, and training and development. This is a problem because it can stall a company’s scaling efforts. To prevent this from happening, companies must make core processes like recruiting, interviewing, and development a real priority in daily practice. As Aristotle emphasized a long time ago, “Excellence is a habit.”

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  • January–February 2018
  • Harvard Business Review

The New CEO Activists

By: Chatterji, Aaron K., and Michael W. Toffel

Abstract—Though corporations have been lobbying the government and making campaign donations for a long time now, in recent years a dramatic new trend has emerged in U.S. politics: CEOs are taking very public stands on thorny political issues that have nothing to do with their firms’ bottom lines. Business leaders like Tim Cook of Apple, Howard Schultz of Starbucks, and Marc Benioff of Salesforce—among many others—are passionately advocating for a range of causes, including LGBTQ rights, immigration, the environment, and racial equality. Not only are CEOs speaking out, but they’re flexing their firms’ economic muscles by threatening to move business activities out of states that pass controversial laws. But does CEO activism actually change public opinion and policies? What are its risks and rewards? And what is the playbook for leaders considering speaking out? The authors of this article examine those questions and explain the takeaways of their own research. One finding: Consumers tend to view CEO activism through the lens of their own political affiliations, so it can provoke both negative and positive responses. Nevertheless, in the age of Twitter, silence on an issue can be conspicuous—and consequential.

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Come Together: Firm Boundaries and Delegation

By: Alfaro, Laura, Nick Bloom, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew F. Newman, Raffaella Sadun, and John Van Reenen

Abstract—Little is known theoretically, and even less empirically, about the relationship between firm boundaries and the allocation of decision rights within firms. We develop a model where firms choose which suppliers to integrate and whether to delegate decisions to integrated suppliers or keep them centralized. We test the predictions of this model using a novel dataset that combines measures of vertical integration and delegation for a large set of firms operating in many countries and industries. In line with the model’s predictions, we find that integration and delegation covary positively, and that producers are more likely to integrate suppliers in input sectors with greater productivity variation.

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Business and Green Knowledge Production in Sweden 1960s–1980s

By: Bergquist, Ann-Kristin, and Kristina Söderholm

Abstract—This working paper contributes to the burgeoning historical literature that has transformed our understanding about the relationship between big business and the environmental regulation. Previously, it was believed that corporate managers resisted the extra costs imposed by environmental regulation from the 1960s. This argument was primarily based on empirical evidence from the United States. It has now been established by a new generation of researchers that corporate responses were not homogeneous. There were major variations between individual managers, companies, industrial sectors, and national business systems. This working paper supports this reinterpretation by examining the case of Sweden, where the relationship between big business and government turns out to be different from that in the United States. It shows that big business emerged as a constructive player in environmental policy in the 1960s, when it persuaded the government to establish a joint research institute known as the IVL and a closely connected consulting company to address pollution. IVL developed an important role as knowledge producer and as an intermediary of environmental knowledge between the late 1960s and the 1980s. The proactive response of Swedish big business is shown to have been based on a belief that efficient pollution control policies and regulations needed to be based on hard science and engineering knowledge. To achieve this, collaboration with the Swedish government was seen as instrumental and joint R&D was regarded as a means to share knowledge and costs. The study ends by noting that in the 1980s the pivotal role of IVL transitioned as environmental challenges evolved, Swedish universities assumed leadership in creating environmental knowledge, while conventional management consultancies entered the market of environmental management.

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Identifying Sources of Inefficiency in Health Care

By: Chandra, Amitabh, and Douglas O. Staiger

Abstract—In medicine, the reasons for variation in treatment rates across hospitals serving similar patients are not well understood. Some interpret this variation as unwarranted and push standardization of care as a way of reducing allocative inefficiency. However, an alternative interpretation is that hospitals with greater expertise in a treatment use it more because of their comparative advantage, suggesting that standardization is misguided. We develop a simple economic model that provides an empirical framework to separate these explanations. Estimating this model with data on treatments for heart attack patients, we find evidence of substantial variation across hospitals in both allocative inefficiency and comparative advantage, with most hospitals overusing treatment in part because of incorrect beliefs about their comparative advantage. A stylized welfare-calculation suggests that eliminating allocative inefficiency would increase the total benefits from this treatment by about a third.

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  • Harvard Business School Case 218-001

Bega Cheese: Bidding to Bring Vegemite Back Home

In January 2017, the leadership team of Bega Cheese—the Australian dairy company—was considering a bid for Mondelez International’s Australia and New Zealand (ANZ) grocery business, which included several leading consumer brands such as Vegemite, the iconic Australian spread. The team must decide whether to bid for the division and, if so, how much to offer and how to finance the all-cash bid. Making these decisions was difficult because this would be Bega’s largest acquisition ever and it would extend the firm outside of its core dairy business. In addition to the valuation and financing issues, the leadership team must decide whether shifting from the firm's current B2B business model (manufacturing and processing dairy products) to a more B2C business model (a producer of branded consumer foods) made sense strategically.

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Following the announcement of the merger of the Turkish Economic Bank (TEB) and Fortis Bank AS, Varol Civil, TEB's CEO, is faced with the task of executing the merger of these two entities. First, all parties must agree to the economic terms of this merger; a process that is challenging due to the complex ownership structures of these banks. Second, Civil and his team must find a way to combine the operations of the banks. With meaningful overlap between the two franchises the potential for cost savings and synergies is significant. However, the risks involved are also significant.

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  • Harvard Business School Case 918-001

Loss Prevention at Mac's Convenience Stores (A)

Faced with a persistent robbery problem at his convenience store company, Sean Sportun, security and loss prevention manager at Mac’s of Central Canada, looked to standardize safety measures and devise a new way of preventing employee injury. But as a 32-year old with just one year on the job, Sportun had to tailor his message for change carefully to his colleagues, many of whom had worked for Mac’s for decades. The case provides an overview of the convenience store industry and examines the challenges of crime prevention in a late-night retail environment.

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  • Harvard Business School Case 918-002

Loss Prevention at Mac's Convenience Stores (B)

Supplement to HBS No. 918-001. The case describes the inventive approaches to retail crime prevention that Sean Sportun, security and loss prevention manager at Mac’s Convenience Stores, implemented between 2007 and 2017.

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  • Harvard Business School Case 318-002

Hulu: Redefining the Way People Experience TV

In May 2017, Hulu CEO Mike Hopkins announced the launch of Hulu Live TV, a new offering that would "change the way people experience TV." The new service would allow consumers to bypass traditional cable and satellite delivery and use the Internet to access live streams of more than 40 popular broadcast and cable networks along with Hulu’s existing suite of on-demand programming. Priced at $39.99 per month, Hulu Live TV offered consumers a tremendous savings over traditional cable program packages and allowed subscribers to watch programs on Internet-connected televisions and a wide range of mobile devices. Hopkins also announced that the company would make a major push into the production of exclusive, original programming, one of the industry's most competitive areas. Hulu's new initiatives occurred during a major transformation in the TV industry as the Internet had revolutionized every aspect of the business. Industry observers wondered if Hulu could successfully compete against the entrenched cable, satellite, and telephone companies (known as Multichannel Video Programming Distributors, or MVPDs). Was $39.99 per month a sustainable price point for Hulu's new virtual MVPD (vMVPD)? How big a war chest would the company need to succeed in the original programming arena where competitors annually spent billions of dollars? Could Hulu navigate potential conflicts with the individual business plans of its owners: Comcast, 21st Century Fox, Disney, and Warner Bros.—some of the most powerful companies in the entertainment business?

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  • Harvard Business School Case 318-068

Eastern Bank: Innovating Through Eastern Labs

Eastern Bank is a 200-year-old New England mutual bank with a community focus. Eastern specializes in small business lending, having made strategic investments to become the top SBA lender in New England in the midst of the Great Recession, when other banks were pulling back. But with technology threatening to disrupt Eastern’s relationship banking model, CEO Bob Rivers is getting worried. Looking to spur innovation at the bank, he set up meetings at MIT to talk with “fintech” entrepreneurs. In a deliberate quest for innovation talent, Rivers finds his way to Dan O'Malley, co-founder of the payments division at Capital One and, most recently, CEO of a failed online bank. O'Malley agrees to join the bank as Chief Digital Officer, leading product development, customer support, and “Eastern Labs”—a new office enclosed by glass walls and located in the middle of Eastern's main lobby. Rivers provides Labs with $4 million annually—1% of gross revenues—to develop new banking technologies, and promises to help O’Malley spin out his own company if he develops product that can be monetized. O’Malley conducts tests in insurance cross-selling and small business lending, eventually launching a completely automated small business lending product. Rivers keeps the promise by helping O'Malley spin out a bank technology company called Numerated, and secures a 25% equity share for Eastern. But by the time of the spin out, Rivers is reassessing the success of the effort. Did Rivers have the right intrapreneurship model? Did he change the culture at Eastern? Did he make a mistake spinning off Numerated into a separate company? What lessons can he learn for “Labs 2.0”?

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  • Harvard Business School Case 118-023

Accounting for Political Risk at AES

As a global energy generating company, AES frequently faces challenges from political changes and instability. This is exacerbated by the fact that in many instances AES' primary customer is the government, which is also in charge of law-making. For example, AES' management team has encountered expropriation risks in Venezuela, collection problems in the Dominican Republic, and regulatory changes in the United States that have led to asset impairments. More recently, the Bulgarian energy regulator announced its intentions to seek a 30% price reduction on a power purchase agreement signed over ten years ago with AES. Accordingly, AES' management is evaluating whether the renegotiation will lead to any asset impairments and the overall effects on its financial statements.

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  • Harvard Business School Case 118-024

Accounting for Political Risk at AES (B)

Supplement to the (A) case, HBS No. 118-023.

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