First Look

Abstract—During the last quarter century, international business was shaken by a revolution in global competition unlike any previously experienced. As companies move through the twenty-first century, they need to be aware of the range of powerful, dynamic, and often conflicting forces shaping the emerging competitive environment. The globalization of markets, the increasing homogeneity of customer needs worldwide, the impact of the digital economy, and progressively falling tariffs in the face of occasional protectionist reversals together mean that few companies can afford to remain focused on their domestic markets. Managers responsible for marketing in a multinational or global enterprise must design appropriate marketing programs for each national market. To some extent, each country must be treated as a separate marketplace, because each has its own legal requirements, cultural traditions, and business methods, and most have their own currencies. The dramatic changes in strategic thinking and organizational relationships have made the boom in alliances, consortia, and strategic partnerships a worldwide phenomenon. Sensing, analyzing, and developing appropriate responses to the complex new demands of the expanded, global marketplace is difficult, and the greatest challenge comes in developing the organizational capabilities and managerial competencies to implement a clearly defined strategic intent. This book of cases provides real examples of these challenges.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52557

Abstract—We study how people reconcile conflicting moral intuitions by juxtaposing two versions of classic moral problems: the trolley problem and the footbridge problem. When viewed separately, most people favor action in the former and disapprove of action in the latter, despite identical consequences. The difference is often explained in terms of the intention principle—whether the consequences are intended or incidental. Our results suggest that when the two problems are considered together, a different judgment emerges: participants reject the intention principle and embrace either the principle of utilitarianism, which favors action in both problems, or the action principle, which rejects action in both problems. In subsequent studies, we find that when required to choose between two harmful actions, people prefer the action that saves more lives, despite its being more aversive. Our findings shed light on the formation of moral judgment under normative conflict, the conditions for preference reversal, and the potential polarization of moral judgment under joint evaluation. Organizational implications are discussed.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=51617

Abstract—Work-scheduling research typically prescribes task sequences implemented by managers. Yet employees often have discretion to deviate from their prescribed sequence. Using data from 2.4 million radiological diagnoses, we find that doctors prioritize similar tasks (batching) and those tasks they expect to complete faster (shortest expected processing time). Moreover, they exercise more discretion as they accumulate experience. Exploiting random assignment of tasks to doctors’ queues, instrumental variable models reveal that these deviations erode productivity. This productivity decline lessens as doctors learn from experience. Prioritizing the shortest tasks is particularly detrimental to productivity. Actively grouping similar tasks also reduces productivity, in stark contrast to productivity gains from exogenous grouping, indicating deviation costs outweigh benefits from repetition. By analyzing task completion times, our work highlights the tradeoffs between the time required to exercise discretion and the potential gains from doing so, which has implications for how discretion over scheduling should be delegated.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52555

Abstract—This article discusses the growth over time of the beauty industry in Latin America and its bias towards celebrating whiter rather than darker skin. Although alleged Latin American fascination with beauty is regularly ascribed to culture, Latin sensuousness, and machismo attitudes, this article shows that the growth of the industry was historically contingent. It was shaped by corporations, especially Avon and Colgate, that transferred marketing capabilities from the United States and Europe. The industry also grew as the means out of poverty for many women who worked as sales consultants and in salons. Winning beauty contests became the equivalent to winning a lottery. In this respect, the impact of the beauty industry was positive. However it also, as elsewhere, imposed restrictive notions of beauty on generations of women and created cultures in which breast implants and buttocks injections became the societal norm. The industry intensified rather than challenged the deep racism of the region.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=52560

Abstract—The television industry is undergoing a generational shift in structure; however, many demand-side determinants are still not well understood. We model how consumers choose video content provision among over-the-air (OTA), paid subscription to cable or satellite, and online streaming (also known as over-the-top or OTT). We apply our model to a U.S. dataset encompassing both the digital switchover for OTA and the emergence of OTT, along with a recession, and use it to analyze cord-cutting behavior (i.e., dropping of cable/satellite subscriptions). We find high levels of cord cutting during this time and evidence that it became relatively more prevalent among low-income and younger households—suggesting this group responded to changes in OTA and streaming options. We find little evidence of households weighing relative content offerings/quality when choosing their means of video provision during the timespan of our data. This last finding has important ramifications for strategic interaction between content providers.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50817

Abstract—Management buyouts (MBOs) are an economically and legally significant class of transaction: not only do they account for more than $10 billion in deal volume per year, on average, but they also play an important role in defining the relationship between inside and outside shareholders in every public company. Delaware courts and lawyers in transactional practice rely heavily on “market-check” processes to ensure that exiting shareholders receive fair value in MBOs. This article identifies four factors that create an unlevel playing field in that market check: information asymmetries, valuable management, management financial incentives to discourage overbids, and the “ticking-clock” problem. This taxonomy of four factors allows special committees and their advisors to assess the degree to which the playing field is level in an MBO, and (by extension) the extent to which a market canvass can provide a meaningful check on the buyout price. This article then identifies more potent deal process tools that special committees can use to level the playing field: for example, contractual commitments from management that allow the board to run the process; pre-signing rather than post-signing market checks; information rights rather than match rights; ex ante inducement fees; and approval from a majority of the disinterested shares. This article also identifies ways that the Delaware courts can encourage the use of these more potent devices when appropriate: through the threat of entire fairness review, the application of Revlon duties, and the weight given to the deal price in appraisal proceedings. The result would be improved deal process design in MBOs and improved capital formation in the economy overall.

Publisher's link: http://www.hbs.edu/faculty/Pages/item.aspx?num=50980

Abstract—We develop a theoretical model of, and provide the first large-sample evidence on, the behavior and impact of non-practicing entities (NPEs) in the intellectual property space. Our model shows that NPE litigation can reduce infringement and support small inventors. However, the model also shows that as NPEs become effective at bringing frivolous lawsuits, the resulting defense costs inefficiently crowd out firms that, absent NPEs, would produce welfare-enhancing innovations without engaging in infringement. Our empirical analysis shows that, on average, NPEs appear to behave as opportunistic “patent trolls.” NPEs sue cash-rich firms—and target cash in business segments unrelated to alleged infringement at essentially the same frequency as they target cash in segments related to alleged infringement. By contrast, cash is neither a key driver of intellectual property lawsuits by practicing entities (e.g., IBM and Intel), nor of any other type of litigation against firms. We find further suggestive evidence of NPE opportunism: targeting of firms that have reduced ability to defend themselves, repeated assertions of lower-quality patents, increased assertion activity nearing patent expiration, and forum shopping. We find, moreover, that NPE litigation has a real negative impact on innovation at targeted firms: firms substantially reduce their innovative activity after settling with NPEs (or losing to them in court). Meanwhile, we neither find any markers of significant NPE pass-through to end innovators nor of a positive impact of NPEs on innovation in the industries in which they are most prevalent.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=47648

Abstract—SEC oversight of publicly listed firms ranges from comment letter (CL) reviews of firms’ reporting compliance to pursuing enforcement actions against violators. Prior literature finds that firm political connections (PC) negatively predict enforcement actions, inferring SEC capture. We present new evidence that firm PC positively predict CL reviews and substantive characteristics of such reviews, including the number of issues evaluated and the seniority of SEC staff involved. These results, robust to identification concerns, are inconsistent with SEC capture and indicate a more nuanced relation between firm PC and SEC oversight than previously suggested.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52543

Abstract—Many production processes are subject to inspection to ensure they meet quality, safety, and environmental standards imposed by companies and regulators. This paper explores how the scheduling of inspections risks introducing bias that erodes inspection quality by altering inspector stringency. We theorize that inspection results will be affected by (a) when the inspection occurs within an inspector’s daily schedule and (b) the inspection outcomes of the inspector’s prior inspected establishment. Analyzing thousands of food safety inspections, we find that inspectors cite fewer violations in successive inspections throughout their day and when inspections risk prolonging their typical workday. We also find that inspectors cite more violations after inspecting establishments that exhibited worse compliance or greater compliance deterioration. We discuss several implications for managers who schedule or rely on inspections.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52570

Abstract—We study the impact of the minimum wage on firm exit in the restaurant industry, exploiting recent changes in the minimum wage at the city level. The evidence suggests that higher minimum wages increase overall exit rates for restaurants. However, lower quality restaurants, which are already closer to the margin of exit, are disproportionately impacted by increases to the minimum wage. Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14% increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating) but has no discernible impact for a 5-star restaurant (on a 1 to 5 star scale).

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52552

Abstract—An extensive literature on venture capital has studied asymmetric information and agency problems between investors and entrepreneurs, examining how separating entrepreneurs from the investor can create frictions that might inhibit the funding of good projects. It has largely abstracted away from the fact that a startup typically does not have just one investor but rather several VCs that come together in a syndicate to finance a venture. In this paper, we therefore argue for an expansion of the standard perspective to also include frictions within VC syndicates. Put differently, what are the frictions that arise from the fact that there is not just one investor for each venture, but several investors with different incentives, objectives, and cash flow rights who nevertheless need to collaborate to help make the venture a success? We outline the ways in which these coordination frictions manifest themselves, describe the underlying drivers, and document several contractual solutions used by VCs to mitigate their effects. We believe that this broader perspective provides several promising avenues for future research.

Download working paper: http://www.hbs.edu/faculty/Pages/item.aspx?num=52558

The case discusses the digitalization strategy of Siemens AG, a German-based company operating in manufacturing and electronics. The increasing impact of digital technologies on all of its business units had prompted CEO Joe Kaeser and his team to put digitalization at the core of the new corporate strategy, alongside electrification and automation. The challenge was to balance this corporate initiative with the many business units within Siemens, which were used to being independent and had very specific offerings for their clients. For its new analytics platform, Siemens had opted for a push and pull approach to involve business units in its creation, rather than conceptualizing the platform centrally and imposing it on the business units afterwards. The jury was still out on whether this approach would drive digitalization within Siemens fast enough, given the exponential developments in data generation and analytics.

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In 2014, Medtronic was about to execute a $50 billion acquisition of Ireland-based Covidien. Medtronic CEO Omar Ishrak was committed to building the largest medical technology company in the world while broadening its ability to fulfill its mission of “alleviating pain, restoring health, and extending life” for millions more patients every year. The acquisition plan might change when, in September 2014, U.S. Secretary Jacob Lew issued new rules for American companies seeking to change their legal domicile through mergers with foreign companies—so-called tax inversion. Should Medtronic proceed with the acquisition? What would be the challenges of integration for both organizations?

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On December 1, 2014, Medtronic announced that it had completed a $17 billion bond sale to finance the Covidien acquisition, officially completed on January 26, 2015. Medtronic’s legal headquarters moved to Ireland, while its operational headquarters remained in Minneapolis, Minnesota. In this case study, Medtronic CEO Omar Ishrak reflects back on the integration progress since the deal’s completion and offers his perspective as a global leader.

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No abstract available.

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Dan Burton, Health Catalyst CEO (HBS Baker Scholar), and Tom Burton, Health Catalyst Senior Vice President of Product Development and cofounder, closed on a $41 million investment round. Their firm was one of the hottest companies in the health information technology field. They provided core data warehouse technology to enable analytics from electronic health record systems. Still, they faced significant competition in this space. Could they execute against their vision?

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This background note explains the structure of incentive-based sales compensation systems.

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In 2016, JCDecaux was number one in the world in outdoor advertising. This was a far cry from the situation in 2003; at that time, JCDecaux had been unseated by Clear Channel from the number-one spot that it had held for decades, and it was fighting for second place with OUTFRONT (then owned by Viacom). Over the 12 intervening years, JCDecaux had doubled in size, building leadership positions in China, Japan, Latin America, Africa, and Russia, and in 2010, it had passed Clear Channel to lead the industry once more. Now, co-CEOs Jean-François Decaux and Jean-Charles Decaux were looking for new ways and new places to grow. After the company overtook Clear Channel in 2010, Jean-François had indicated that he believed that another doubling in size was feasible, but it would probably take a major acquisition to do so. And JCDecaux faced more pressing short-term issues. The contract for London bus shelters that the company had won with much fanfare in August 2015 was behind schedule. To make matters worse, the United Kingdom’s June 2016 “Brexit” vote to leave the European Union cast a shadow over the project, and the markets reacted negatively. By the start of November, JCDecaux’s share price had fallen 21% since the beginning of the year. Just what the economic uncertainty of Brexit would mean for global outdoor advertising in general, and U.K. outdoor advertising in particular, was not clear. Doubling in size in such an environment appeared a daunting task.

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At the end of 2003, Clear Channel Communications, Inc., a diversified media group with revenues of $8.9 billion, could claim leadership positions in all three of its main businesses. Clear Channel Broadcasting was the largest radio-station operator in the world, with sales of $3.7 billion and EBITDA of $1.6 billion. Clear Channel Outdoor was the largest outdoor advertiser in the world, with revenues of $2.2 billion generating EBITDA of $581 million. Clear Channel Entertainment was the world’s largest live-entertainment promoter with revenues of $2.6 billion and EBITDA of $191 million. Media entrepreneur L. Lowry Mays (MBA 1962) had built Clear Channel through a concerted campaign of acquisitions over 30 years by consolidating fragmented media businesses, delighting shareholders in the process. But maintaining the pace of acquisitions was proving challenging, and the synergies he had hoped for between his businesses had proven elusive. Shareholders were upset. How might Mays return Clear Channel to its former glory?

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Supplements the (A) case.

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This note describes virtual reality and augmented reality technologies and describes the main consumer products on offer in 2016 as well as their manufacturers. It also surveys existing applications of virtual and augment reality technologies.

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