First Look

January 24, 2012

The Economics Of Corruption

The study of corruption has one glaring problem: the difficulty obtaining data upon which to base conclusions. Shawn A. Cole and Anh Tran add to the research literature of corruption by analyzing actual internal records of firms that paid bribes in an Asian developing country. The work, they report, provides "new estimates of corruption and study its relationship with organizational ownership." Their book chapter, "Evidence from the Firm: A New Approach to Understanding Corruption", will be included in the forthcoming second volume of International Handbook on the Economics of Corruption.

Learning The Lingua Franca Of Business

Many international companies require workers to learn English, which some consider the lingua franca of global business. But the practice is causing aggravation and anxiety among employees, resulting in decreased productivity as the issues are addressed. Writing for Organizational Dynamics, a research team including Harvard Business School's Tsedal Neeley explores the problems and present lessons. One learning: a little empathy goes a long way.

How A Travel Agency Assesses Risk

Who are the best risk managers? Tough to say, but travel advisers must be pretty high up the list. Herman B. Leonard's new case, "Grand Circle Travel: Where Risk Comes with the Territory," takes a trip to understand how Alan and Harriet Lewis organize their travel business, which provides rapid response to travelers confronted with everything from floods to terrorists. Subjects touched upon in the case include competitive advantage, core competencies, and customer service.

— Sean Silverthorne


iPhones for Friends, Refrigerators for Family: How Products Prime Social Networks


We show that priming consumers with products associated with specific social networks increases the salience of those networks, influencing both word-of-mouth intentions and consumption. Consumers were exposed to friend- or family-related products (e.g., game consoles or refrigerators); when asked to list the first people they knew who came to mind, they were more likely to list members of primed networks (Study 1). Product priming also increases the speed with which product-relevant individuals come to mind (Study 2). In Study 3, consumers felt subjectively closer to networks primed by specific products, and this felt closeness predicted subsequent word-of-mouth intentions. Finally, Study 4 shows that priming relevant networks (e.g., family or friends) makes products associated with those networks more attractive.

Read the paper: norton.pdf

The Influence of Prior Industry Affiliation on Framing in Nascent Industries: The Evolution of Digital Cameras


New industries sparked by technological change are characterized by high technological, market, and competitive uncertainty. In this paper we explore how a firm's conceptualization of products in this context, reflected in its introduction of product features, is influenced by prior industry affiliation. We hypothesize first, that prior industry experience shapes a set of shared beliefs resulting in similar and concurrent firm behavior; second, that firms will notice and imitate the behaviors of firms from the same prior industry; and third, that as firms gain experience with particular features, the influence of prior industry will decrease. Our hypotheses are supported by findings from a quantitative, large sample study of digital cameras introduced from 1991 to 2006 by firms from three prior industries: photography, consumer electronics, and computers. By 2004, several features had emerged as a dominant design; however, the timing and rate of adoption varied by prior industry. This study extends previous research on firm entry into new domains by examining heterogeneity in firms' feature-level entry choices. In addition, we contribute to work on dominant designs, going beyond characterizing a dominant design as a set of technological choices to understanding cognitive convergence on a standard set of demand-side product features.

Read the paper:

Evidence from the Firm: A New Approach to Understanding Corruption


Due to its clandestine nature, most of what we understand about corruption comes from survey evidence and self-reported perceptions of corruption: this limits both the range of questions that can be asked and the precision of answers that can be provided. This chapter proposes a new lens to understand corruption, using internal records collected from firms that pay bribes. We examine widespread corruption in three industries in an Asian developing country: procurement, pharmaceutical sales, and construction. Using data of real bribes, we provide new estimates of corruption and study its relationship with organizational ownership.


Knowledge-based Innovation: Emergence and Embedding of New Practice Areas in Management Consulting Firms


How do innovative knowledge-based structures emerge and become embedded in organizations? We drew on theories of knowledge-intensive firms, communities of practice, and professional service firms to analyze multiple cases of new practice area creation in management consulting firms. Our qualitative analysis identified four critical generative elements: socialized agency, differentiated expertise, defensible turf, and organizational support. We demonstrate that these elements must be combined in specific pathways for knowledge-based innovative structures to emerge and embed. These pathways emerge from practitioner networks, markets for knowledge-based services, and professional firms' hierarchies. Our findings have important implications for studying innovation in the knowledge-based economy.

Does Mandatory IFRS Adoption Improve the Information Environment?


We examine the effect of mandatory International Financial Reporting Standards (IFRS) adoption on firms' information environment. We find that after mandatory IFRS adoption, consensus forecast errors decrease for firms that mandatorily adopt IFRS relative to forecast errors of other firms. We also find decreasing forecast errors for voluntary adopters, but this effect is smaller and not robust. Moreover, we show that the magnitude of the forecast errors decrease is associated with the firm-specific differences between local GAAP and IFRS. Exploiting individual analyst level data and isolating settings where analysts would benefit more from either increased comparability or higher quality information, we document that the improvement in the information environment is driven both by information and comparability effects. These results are robust to variations in the measurement of information environment quality, forecast horizon, sample composition, and tests of earnings management.

Read the paper:

Wider dem sauren Mund. Beiersdorfs U.S.-Geschaeft mit der Zahnpastamarke Pebeco


This article examines the growth and ultimate demise of the toothpaste brand Pebeco, which was created by the German personal care company Beiersdorf in 1903. The brand was an enormous international success, becoming for a time the largest toothpaste brand in the United States. During the interwar years, however, the brand suffered a precipitate decline and fell into oblivion. This article explores the rise and fall of the Pebeco brand. It shows the challenges faced by German-based multinationals in the United States (and elsewhere) during and after World War I, as well as demonstrating the rapidly changing market for dental hygiene in the interwar period. New marketing strategies based on psychological science and consumer protection agencies changed the rules of the game and left Pebeco unable to compete against firms such as Colgate.

Policy Bundling to Overcome Risk Aversion: A Method for Improving Legislative Outcomes


Policies that would create net benefits for society but would also involve costs frequently lack the necessary support to be enacted because losses loom larger than gains psychologically. To reduce the harmful consequence of loss aversion, we propose a new type of policy bundling technique in which related bills that have both costs and benefits are combined. In our first laboratory study, we confirm across a set of four legislative domains that this bundling technique increases support for bills that have both costs and benefits. We also show in a second study that this effect stems from a diminished focus on losses and a heightened focus on gains when policies are evaluated in bundled form.


Structuring Consulting Firms


This chapter presents a model of the way in which consulting and other professional-service firms organize themselves and grow. We will argue that the fundamental structural-design challenge for consulting firms, like other professional firms, is to adapt appropriately to market and institutional demands. Central to this challenge are decisions about how best to organize the expertise they marshal to compete. Expertise is organized at two levels: at a micro level through flexible project-team structures and at a macro level principally through units called practices. Macro structural choices define and promote development of the practice portfolio.

Publisher's Link:

Language Matters: Status Loss & Achieved Status Distinctions in Global Organizations


How workers experience and express status loss in organizations has received little scholarly attention. I conducted a qualitative study of a French high-tech company that had instituted English as a lingua franca, or common language, as a context for examining this question. Results indicate that nonnative English-speaking employees experienced status loss regardless of their English fluency level. Yet variability in their self-assessed fluency-an achieved status marker-was associated with differences in language performance anxiety and job insecurity in a non-linear fashion: those who believed they had medium level fluency were the most anxious compared to their low and high fluency co-workers. In almost all cases where they differed, self-assessed rather than objective fluency determined how speakers explained their feelings and actions. Although nonnative speakers shared a common attitude of resentment and distrust toward their native English-speaking co-workers, their behavioral responses-assertion, inhibition, or learning-to encounters with native speakers differed based on their self-perceived fluencies. No status differences materialized among nonnative speakers as a function of diverse linguistic and national backgrounds. I discuss the theoretical and practical implications of these findings for status, achieved characteristics, and language in organizations.

The (Un)Hidden Turmoil of Language in Global Collaboration


Companies are increasingly relying on a lingua franca, or common language (usually English), to facilitate cross-border collaboration. Despite the numerous benefits of a lingua franca, our research reveals myriad challenges that disrupt collaboration and contribute to process decrements and productivity losses, many of which are hidden from leaders' attention. Through a series of field studies with global companies, we document language dynamics among global workers. Most notably, we found that both native and nonnative English speakers suffer anxiety when faced with conducting business in English. Nonnative English speakers respond with anxiety-mitigating strategies, such as avoiding English-only speakers or reverting to their native language, thus passing the problem like a "hot potato" to their native English-speaking colleagues. Native English speakers respond with strategies to reduce their own anxiety, such as exiting meetings and demanding that English be spoken, which passes the burden back to their nonnative English speaking colleagues. This back-and-forth dynamic often occurs because the feelings and experiences of native and nonnative co-workers are hidden from each other. Empathy arrests this cycle, leading to more sensitivity and accommodation of language diversity. Based on the insights from our research, we present lessons that global managers and collaborators alike can employ to halt the "hot potato" cycle and minimize productivity loss in global collaborations.

Identity Workspaces for Leadership Development

An abstract is unavailable at this time.

Read the paper: _for_leadership development.pdf

Ambidextrous Leadership: Emerging Challenges for Business and HR Leaders


Large firms are prone to failure in the face of changing industry landscapes. To overcome these challenges, organization-theory scholars suggest that companies become ambidextrous-that they establish new growth businesses while remaining focused on execution in their existing businesses. Becoming ambidextrous is first and foremost a leadership challenge: business leaders need to balance current and new activities, combine short-term and long-term thinking, and craft emotionally engaging visions while staying focused on execution. In this article, we analyze how one organization, GE Money Bank in Switzerland, successfully created a new growth business through ambidextrous leadership. We subsequently use the GE Money Bank case to explore comprehensively how ambidextrous leadership works in practice, as well as business and HR leaders' active role in developing and promoting ambidextrous leadership.


Cases & Course Materials

HUGE and Digital Strategy

Ramon Casadesus-Masanell and Nicholas G. Karvounis
Harvard Business School Case 712-442

In 2011, HUGE, Inc. is the fastest growing digital agency in the U.S. Its CEO, Aaron Shapiro, is considering a set of novel growth strategies to take his firm to the next level. However, the digital strategy industry in which HUGE has made a name for itself is highly fluid and constantly evolving-the options facing Shapiro and HUGE must be considered in light of an industry structure that blurs the lines across competitors, complements, and clients and could easily shift for or against digital agencies such as HUGE in the near future. Using HUGE as a focal point, students are asked to evaluate competitive dynamics in the digital strategy industry and predict the evolution of the market. They are also asked to use the unique dynamics of the digital strategy industry as a backdrop for assessing HUGE's best growth option going forward.

Purchase this case:


Lena G. Goldberg, and Michael J. Roberts
Harvard Business School Case 812-050

Focuses on a small start-up software company engaged in a negotiation over its software licensing agreement with a very large potential client. The entrepreneur must weigh legal and business issues versus his desire to land the key customer.

Purchase this case:

Grand Circle Travel: Where Risk Comes with the Territory

Herman B. Leonard
Harvard Business School Case 311-105

A worldwide travel company is intrinsically exposed to risks of natural and man-made disasters. How do you organize a business for success when it must on a nearly daily basis cope with hazards ranging from minor mishaps to large-scale catastrophes? Alan and Harriet Lewis have built a successful travel company based on their idea of "extreme competitive advantage"-and one of their core skills has to be quick and effective response when the travelers on one of their trips are exposed to flood, famine, pestilence, disease, earthquakes, tsunamis, terrorism, and other hazards yet to be discovered. What is the best way to organize so as to be able to respond quickly, reliably, flexibly, and adaptively when troubles arise?

Purchase this case:

Yale University Investments Office: February 2011

Josh Lerner and Ann Leamon
Harvard Business School Case 812-062

David Swensen and the Investments Office staff must decide whether to continue to allocate the bulk of the university's endowment to illiquid investments-hedge funds, private equity, real estate-given the impact of the recent market turmoil. The case explores the risks and benefits of a different asset allocation strategy and also considers how to classify some of the different assets. It highlights the issues around allocations across different subclasses, e.g., among venture capital, hedge funds, and real assets.

Purchase this case:

Hexcel Turnaround-2001 (A)

Paul W. Marshall, James Quinn, and Reed Martin
Harvard Business School Case 806-099

Hexcel's new CEO is faced with deciding how to "take out" $60 million in cash costs in fiscal 2002, as two of the company's end markets-electronics and commercial aerospace-are expected to decline precipitously. Options include closing plants, exiting a business, or undertaking a major headcount reduction. Includes a description of Hexcel's private equity relationship with Goldman Sach's Capital Partners and presents the financial challenges of renegotiating bank lending covenants and managing maturing debt. Focuses on selecting a turnaround approach from the point of view of a general manager (the CEO).

Purchase this case:

Purchase this supplement (B):

Purchase this supplement (C):

PunchTab, Inc.

Ramana Nanda, William R. Kerr, and Lauren Barley
Harvard Business School Case 812-033

PunchTab was a Silicon Valley start-up, founded in 2011, that was developing an Internet-based turnkey customer loyalty program for website owners, mobile applications developers, and brands. Founder/CEO Ranjith Kumaran must make strategic decisions about how to fund PunchTab's early operations and growth given the many options available: individual angel investors, super angel funds, incubators, and seed funds inside traditional venture capital firms.

Purchase this case:

Chris and Alison Weston (A)

Sandra J. Sucher and Celia Moore
Harvard Business School Case 612-019

Chris and Alison Weston describe how they, a well-educated middle class couple, ended up committing mail fraud, for which they each served a year and a half in federal prison. The case highlights for students how otherwise upstanding individuals much like themselves can commit crimes without being truly aware that they are doing it.

Purchase this case:

Chris and Alison Weston (B)

Sandra J. Sucher and Celia Moore
Harvard Business School Supplement 612-020

Prepare students to make ethically charged decisions by exploring moral disengagement, a process that enables individuals to engage in negative behaviors, from small misdeeds to great atrocities, without believing they are causing harm or doing wrong.

Purchase this supplement:

A Note on Moral Disengagement

Sandra J. Sucher and Celia Moore
Harvard Business School Note 612-043

An abstract is unavailable at this time.

Purchase this note: