First Look

January 23, 2007

Many acquisitions fall flat, but Unilever did something different with its ice cream and tea business. As described in a Business History article, it's an example of how complementary acquisitions add value. Unilever also took a long-term view of strategy and, because of its size, it could. In the arena of manufacturing and service operations management, this week also sees new research on how retail performance is affected by altering the way store managers are evaluated and rewarded. The research setting: consumer electronics stores in the Tweeter Home Entertainment Group. Also this week, a user-friendly explanation of time-driven activity-based costing; how Spain's Santander acquired one of the biggest U.K. commercial banks; and a field study of how a female entrepreneur, Afghani-born, returned from three decades in Europe to build an export and construction business in war-torn Afghanistan.
— Martha Lagace

Working Papers

None this week.


Cases & Course Materials

Bundling the Contracts: TA-Energy

Harvard Business School Case 807-075

Stimulates discussion of entrepreneurship in emerging economies, especially for entrepreneurs returning to their home countries to start businesses with global technologies and partners. Focuses on the partnership tensions between global firms and local family-dominated conglomerates. Addresses new venture financing in an asset-intensive business through the assembly of strategic contracts. More broadly, highlights the opportunities and challenges for returnee entrepreneurs. Designed for entrepreneurial and international business courses.

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Bill Gates and Steve Jobs

Harvard Business School Case 407-028

Bill Gates and Steve jobs, founders of Microsoft and Apple respectively, have revolutionized the relationship between the individual and computer technology. Once the exclusive domain of academia and research facilities, computers can now be found in every area of business, government, and personal entertainment. Gates and Jobs facilitated this revolution, introducing a generation to the practice of personal computing and laying the foundation for the Information Age. Gates and Jobs turned their curiosity about electronics into a multi-billion dollar industry. From early experiments like the Apple II and DOS to the X-box and the iPod, Gates and Jobs have been committed to pioneering all avenues of technology and distributing them to wide audiences. The journey wasn't without its trials for both CEOs. Gates' antitrust lawsuit of the mid-90s and Jobs' separation from Apple in the late 80s provided challenges to both companies. However, both leaders used these periods of uncertainty as motivation to innovate, taking digital technology into new territory. Pixar Studios, MSNBC, the Xbox, and the phenomena of "infotainment" all arose from the ashes of the corporate controversies. The stories of Bill Gates and Steve Jobs are ultimately one story—it is the story of the personal computer, its software, and its impact upon society. From two college drop-outs based on the West Coast came a revolution which fundamentally influenced the global practice of business.

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Harvard Business School Case 507-019

Brazil's national agricultural research corporation, Embrapa, has developed an integrated crop and livestock production system that will allow farmers and ranchers to intensify production and improve profitability. Broad adoption of the technology would provide the country with greater agricultural production, a major source of exports, without the need to convert additional areas of the Cerrado or Amazon to farmland. However, producers have been slow to adopt it due to the initial costs of the system and the fact that many of the benefits are beyond the farmgate. Embrapa's director of technology transfer must develop a plan to encourage adoption.

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Ethics: A Basic Framework

Harvard Business School Note 307-059

Provides a basic framework for ethical analysis of management decisions, policies, and plans of action.

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Infosys in India: Building a Software Giant in a Corrupt Environment

Harvard Business School Case 707-030

Shortly after Infosys was founded in 1981, its managers faced a major turning point when they made a decision to operate without giving in to the petty corruption rife in the Indian economy. Within just a few years, that decision had truly defined the company. Over the next 25 years, Infosys managers went to extraordinary lengths to avoid even the most modest of practices that they considered inappropriate. Explores the practices and methods that Infosys adopted instead, considers their costs, benefits, and generalizability, and contextualizes the problem within Indian political and economic institutions that continue to evolve.

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Lion Capital and the Blackstone Group: The Orangina Deal

Harvard Business School Case 807-005

The managing partners of two private equity firms are hoping to forestall a third bidding round for a target company, the European beverage division of Cadbury Schweppes. As they wait to meet with the CEO, they revisit their assumptions on the deal and review the insights that informed their valuation.

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Santander's Acquisition of Abbey: Banking Across Borders

Harvard Business School Case 707-485

Banco Santander, Spain's largest commercial bank, announced in July 2004 the acquisition of Abbey National Bank, the fifth largest U.K. commercial bank. This transaction was the largest ever cross-border acquisition in European banking and would result in the 10th-largest bank in the world. Discusses the main sources of value creation from international expansion and acquisitions in the commercial banking industry. Also, highlights the barriers to integration within the single market of the European Union in a regulated service industry such as commercial banking.

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Shahla Nawabi: Reconstructing Afghanistan

Harvard Business School Case 807-023

Explores the strategies of Shahla Nawabi to build a construction and export business in her post-conflict Afghanistan. Nawabi had lived in exile in Europe for three decades and had a successful career in fashion. Explores the challenges facing Nawabi on her return to her native Afghanistan—as a woman pursuing an entrepreneurial career in a country devastated by the rule of the Islamic fundamentalist Taliban and the subsequent U.S.-led invasion of the country. Provides a historical overview of Afghanistan and the position of women in the country to explore the challenges facing female entrepreneurs in a post-conflict country.

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Time-Driven Activity-Based Costing: A Simpler and More Powerful Path to Higher Profits


In the classroom, ABC looks like a great way to manage a company's resources. But many executives who have tried to implement ABC on a large scale in their organizations have found the approach limiting and frustrating. Why? The employee surveys that companies used to estimate resources required for business activities proved too time-consuming, expensive, and irritating to employees. This book shows you how to implement time-driven activity-based costing (TDABC), an easier and more powerful way to implement ABC. You can now estimate directly the resource demands imposed by each business transaction, product, or customer. The payoff? You spend less time and money obtaining and maintaining TDABC data—and more time addressing problems that TDABC reveals, such as inefficient processes, unprofitable products and customers, and excess capacity. The authors also show how to use TDABC to link strategic planning to operational budgeting, to enhance the due diligence process for mergers and acquisitions, and to support continuous improvement activities such as lean management and benchmarking. In presenting their model, the authors define the two questions required to build TDABC: 1) How much does it cost per time unit to supply resource capacity for each business process? 2) How much resource capacity (time) is required to perform work for a company's many transactions, products, and customers? The book demonstrates how to develop simple, valid answers to these two questions. Kaplan and Anderson illustrate the TDABC approach with a wealth of case studies, in diverse settings, based on actual implementations.

Store Manager Incentive Design and Retail Performance: An Exploratory Investigation


Store managers perform multiple tasks within a store, and the way in which they are evaluated and rewarded for these tasks affects their behavior. Using empirical data from multiple stores of a consumer electronics retailer, Tweeter Home Entertainment Group, we highlight the extent to which store manager incentive design impacts store manager behavior and, consequently, retail performance. More specifically, we describe the shift in store manager behavior resulting from a change in incentives which, in part, altered the importance of sales relative to inventory shrinkage in the store manager compensation plan. Store managers, following this change, directed less attention to the prevention of inventory shrinkage and more toward sales-generating activities and made different process choices within the store. We observed increases in the level of inventory shrinkage and sales within these stores. Controlling for alternative drivers of sales and inventory shrinkage, we find this change in incentive design to be associated with a profit improvement of 4.2% of sales. This work indicates that altering how store managers are compensated impacts retail performance. Moreover, our findings underscore the importance of balancing the rewards given for different types of activities in contexts where agents face multiple competing tasks.

Acquisitions and Firm Growth: Creating Unilever's Ice Cream and Tea Business


The role of acquisitions has been widely discussed in management literature. There is considerable evidence that many acquisitions fail, often because of post-acquisition problems. More recently business historians have examined their role in the restructuring of the British, American and other economies after World War Two. Yet the historical and management literatures have been poorly integrated. This article seeks to address some of the issues raised in the management literature by contributing a longitudinal case study of the use of acquisitions by Unilever to build the world's largest ice cream and tea businesses. The study supports recent resource-based theory which argues that complementary rather than related acquisitions add value. It identifies the importance of local knowledge as a key complementary asset. It also identifies reasons why Unilever was able to integrate acquisitions quite successfully, including clear strategic intent and the fact that employee resistance was reduced because most acquisitions were agreed. Finally Unilever could take a long-term view because of its size, and relative unconcern for shareholder interests before the 1980s.

Profiting from Innovation and the Intellectual Property Revolution


This paper reviews the contribution of Teece's article [Teece, D., 1986. "Profiting from Technological Innovation: Implications for Integration, Collaboration, Licensing and Public Policy." Research Policy 15, 285–305]. It then re-examines the core concept of appropriability in the light of recent developments in the business environment. Whereas twenty years ago the appropriability regime of an industry was exogenous and given, today they are often the product of conscious strategies of firms. And as open source software and other industries show, advantageous appropriability regimes are not always "tight" or characterized by strong intellectual property protections. The strategies adopted by firms that have successfully profited from their innovative activities cast into new light old questions about the impact of intellectual property protection on the rate and direction of innovation.