First Look

July 19, 2011

Scholars Turn To Wikileaks

Journalists and politicians aren't the only groups finding value in material published by WikiLeaks. In the new case study "Shell Nigeria: The WikiLeaks Cables," researchers Sandra J. Sucher, Rebecca Henderson, and Matthew Preble use the revelations to better understand the mutually supporting relationship between Royal Dutch Shell and US diplomatic officials.

Opportunistic Insiders

Moving from public information leaks to insider information, a forthcoming paper explores who benefits from insider trading. Lauren Cohen, Christopher Malloy, and Lukasz Pomorski dive into the world of "opportunistic insiders" who profit from inside knowledge. "The most informed opportunistic traders are local non-senior insiders, who come from geographically concentrated, poorly governed firms," the trio reports. The findings will be published in the article "Decoding Inside Information" in a forthcoming Journal of Finance.

Nike's World Cup Marketing Campaign

The World Cup soccer championship is the most popular sporting event on the planet, so the pressure was on Nike to create a marketing splash at the 2010 games in South Africa. The case, "Nike Football: World Cup 2010 South Africa," offers students lessons in integrating multiple value propositions into a unified plan and encourages discussion on branding. It was written by Elie Ofek and Ryan Johnson.

— Sean Silverthorne


Broadening Focus: Spillovers, Complementarities and Specialization in the Hospital Industry


The long-standing argument that focused operations outperform others stands in contrast to claims about the benefits of broader operational scope. The performance benefits of focus are typically attributed to reduced complexity, lower uncertainty, and the development of specialized expertise, while the benefits of greater breadth are linked to the economies of scope achieved by sharing common resources, such as advertising or production capacity, across activities. Within the literature on corporate strategy, this tension between focus and breadth is reconciled by the concept of related diversification (i.e., a firm with multiple operating units, each specializing in distinct but related activities). We consider whether there are similar benefits to related diversification within an operating unit and examine the mechanism that generates these benefits. Using the empirical context of cardiovascular care within hospitals, we first examine the relationship between a hospital's level of specialization in cardiovascular care and the quality of its clinical performance on cardiovascular patients. We find that, on average, focus has a positive effect on quality performance. We then distinguish between positive spillovers and complementarities to examine the following: 1) the extent to which a hospital's specialization in areas related to cardiovascular care directly impacts performance on cardiovascular patients (positive spillovers) and 2) whether the marginal benefit of a hospital's focus in cardiovascular care depends on the degree to which the hospital "co-specializes" in related areas (complementarities). In our setting, we find evidence of such complementarities in specialization.

Decoding Inside Information


Using a simple empirical strategy, we decode the information in insider trading. Exploiting the fact that insiders trade for a variety of reasons, we show that there is predictable, identifiable "routine" insider trading that is not informative for the future of firms. Stripping away the trades of routine insiders leaves a set of information-rich trades by "opportunistic" insiders that contain all the predictive power in the insider trading universe. A portfolio strategy that focuses solely on opportunistic traders yields value-weighted abnormal returns of 82 basis points per month, while the abnormal returns associated with routine traders are essentially zero. Further, opportunistic insiders predict future firm-specific news, as well as announcement returns around future analyst forecasts, management forecasts, and earnings announcements, while routine traders do not. The most informed opportunistic traders are local non-senior insiders, who come from geographically concentrated, poorly governed firms. Lastly, opportunistic traders are significantly more likely to have SEC enforcement action taken against them and reduce their trading following waves of SEC insider trading enforcement.

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Achieving Sustainability Through Integrated Reporting

An abstract is unavailable at this time.

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Deprival Value' vs. 'Fair Value' Measurement for Contract Liabilities: How to Resolve the 'Revenue Recognition' Conundrum?


Revenue recognition and measurement principles can conflict with liability recognition and measurement principles. We explore here under different market conditions when the two measurement approaches coincide and when they conflict. We show that where entities expect to earn 'super profits' (residual income) the conceptual conflict is exacerbated by the adoption of 'fair value' (FV) as the measurement basis for assets and liabilities rather than the more theoretically grounded approach of 'deprival value/relief value' (DV/RV), which better reflects the impact of, and rational management response to, varying market conditions. However, while the problems of balance-sheet liability and revenue recognition, and the related problems of income statement presentation, can be resolved by the application of DV/RV reasoning, this is not sufficient fully to resolve issues of the appropriate timing of profit recognition. Performance measurement issues still need to be addressed directly. The standard setters' current projects on 'revenue recognition', 'insurance contracts', and 'measurement' therefore need broadening to consider the pervasive issue of accounting for internally generated intangibles.

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Cases & Course Materials

Internet Securities, Inc.: Path to Sustainability

Lynda M. Applegate, William R. Kerr, and Ryan Johnson
Harvard Business School Case 811-098

Founded in 1994 when the Internet was still a "toy for techies," the case is set in 1998 when Internet IPOs were red-hot. Internet Securities provides hard-to-find financial, business, economic, and political information on emerging markets. Information from over 600 information suppliers in more than 25 emerging markets (e.g., China, Russia, Poland, Venezuela, Argentina, Chile, Turkey) is provided to over 650 institutional clients, including J.P. Morgan, Deutsche Morgan Grenfell, KPMG, and ING Barings. After ruling out seeking another round of VC financing, the cash-strapped founder of this Internet information service provider must decide whether to IPO or accept an offer to be acquired by Euromoney, a global publishing and information content provider that is eager to launch an Internet information service. The case contains a term sheet that can be reviewed to support analysis and decision making.

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La Fageda

Ramon Casadesus-Masanell, Joan Enric Ricart, and Jordan Mitchell
Harvard Business School Case 711-452

La Fageda is a manufacturer of high-quality, naturally made yogurts in northern Catalonia, Spain. La Fageda is substantially different from its main competitors such as multinational Danone in that it is a 270-person workers' cooperative with 60 percent of its membership made up of mentally disabled individuals. Since its establishment in 1982, the organization has aimed to integrate the mentally disabled by providing meaningful jobs and dignified salaries. As of March 2010, La Fageda has opened up a new production facility to make ice cream in an urban area outside of its well-known agricultural farm. Students are faced with understanding La Fageda's business model and how it competes against multinationals.

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BlackRock Solutions

Kenneth A. Froot and Scott Waggoner
Harvard Business School Case 211-082

The BlackRock Solutions case examines the different functions and economics of a global asset manager's value chain, with particular emphasis on the "money management" and the "investment systems platform" businesses. Students analyze why BlackRock decided to unbundle its Aladdin investment platform and if the firm should consider expanding the platform in the future. Students also explore the resulting "dual-mission" challenges of servicing both internal and external Aladdin clients during a period of rapid growth within BlackRock and significant change in the global financial landscape.

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Erik Peterson at Biometra (A)

John J. Gabarro, Thomas J. DeLong, and Jevan Soo
Harvard Business School Case 411-031

Describes the problems facing a recent MBA graduate in his job as general manager of a medical device company owned by a parent corporation. Raises issues of corporate divisional relationships and the difficulties facing an inexperienced manager who seems to be receiving little support. A redisguised and updated version of earlier case 494-005, reflecting the challenges of managing in innovation/R&D-driven industries and across multiple international sites.

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Erik Peterson at Biometra (B)

John J. Gabarro, Thomas J. DeLong, and Jevan Soo
Harvard Business School Supplement 411-032

This one-paragraph case adds to the data presented in the (A) case. A redisguised and updated version of earlier case 494-006.

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Erik Peterson at Biometra (C)

John J. Gabarro, Thomas J. DeLong, and Jevan Soo
Harvard Business School Supplement 411-033

Describes the outcome of Erik Peterson's meetings over the course of two days with a number of senior executives from the parent company. Students should have read the (A) and (B) cases. The (C) case may be assigned with the (D) case. A redisguised and updated version of earlier case 494-007.

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Erik Peterson at Biometra (D)

John J. Gabarro, Thomas J. DeLong, and Jevan Soo
Harvard Business School Supplement 411-034

Implicitly raises the question of what Peterson should do to extricate himself from his difficulties. Should he resign, go directly to his division's executive vice-president to seek relief, or attempt to clarify the situation within the company? A redisguised and updated version of earlier case 494-008.

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Erik Peterson at Biometra (E)

John J. Gabarro, Thomas J. DeLong, and Jevan Soo
Harvard Business School Supplement 411-035

Presents the final outcome of the events. The Richard Jenkins at SciMat case presents a description from the executive vice-president's point of view of the series of events as reported in the Erik Peterson at Biometra (A), (B), (C), and (D) cases. The Jenkins at SciMat case can be assigned with Erik Peterson at Biometra (E) to give a broader perspective on Peterson's behavior and problems. This case can be handed out during class discussion of the (D) case. A redisguised and updated version of earlier case 494-009.

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Hybrid Electric Vehicles: A 2011 Update

John T. Gourville
Harvard Business School Supplement 511-125

This case is an addendum that updates HBS Case No. 502-025, "The Future of Hybrid Electric Cars." It covers the 10 years, 2001 to 2011.

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Lincoln Center for the Performing Arts: Alternative Futures

Allen Grossman and Coleman Radell
Harvard Business School Case 311-099

Ren Levy took over Lincoln Center for the Performing Arts when it was a group of warring constituents and has successfully brought a diverse group of arts organizations together.

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Vehbi Koc and the Making of Turkey's Largest Business Group

Geoffrey Jones and Asli M. Colpan
Harvard Business School Case 811-081

The case describes the creation of Turkey's largest business group by Vehbi Koç. The foundation of this group in the interwar years, and its subsequent diversification into many industries, including automobiles, household goods, and services, is analyzed. The case serves as a vehicle to explain why diversified business groups are so important in emerging markets such as Turkey. It explores the role of market imperfections, government policies, and entrepreneurial ambition in their creation, as well as the organizational challenges posed by managing such diversified firms owned by a family. Much of the firm's growth came from licensing and joint venture agreements with multinational firms that were unable, or unwilling, to invest directly in Turkey because of political risk and government restrictions. The case ends in 1988 when the founder received a report from the management consultancy Bain calling for the firm to reduce the range of activities it undertakes because of the competitive challenges resulting from the liberalization of the Turkish economy.

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Oriental Fortune Capital: Building a Better Stock Exchange

Josh Lerner and Keith Chi-ho Wong
Harvard Business School Case 811-105

When ChiNext opened in October 2009 as the second tier market of the Shenzhen Stock Exchange (SZSE), it aimed to provide Chinese entrepreneurs with equity capital and to facilitate the exits of venture capital firms and other investors that had previously relied on the New York, London, and Hong Kong markets for public offerings. A year into ChiNext's operation, Dr. Wei Chen, chairman and founder of Oriental Fortune Capital, one of the fastest-growing venture capital firms in China, met with an SZSE research fellow to discuss how the rules governing the market might be adjusted to allow more firms to list and, more importantly, to improve efficiency and transparency in order to make ChiNext a better stock exchange.

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RiskMetrics Group

Jay W. Lorsch and Kaitlyn Simpson
Harvard Business School Case 410-008

RiskMetrics Group, a risk and governance consultancy, had a great deal of influence on U.S. companies. This case examines the history and growth of the company, the governance services it offers, the extent of its impact on shareholders, the controversy surrounding its conflicts of interest, and the impact it has had on directors.

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Nike Football: World Cup 2010 South Africa

Elie Ofek and Ryan Johnson
Harvard Business School Case 511-060

Nike's Football Division needs to devise a strategy to excel at the 2010 World Cup games in South Africa. Nike has gone from a niche player in the market for football apparel and footwear in 1994 to a formidable competitor to Adidas in 2008 (with revenues of over $1 billion for the sport). The case traces how Nike has gone about making this transformation and its activities at each of the World Cups since 1994. For the upcoming World Cup in South Africa, Nike has decided to change its target market focus and to use digital and social media platforms to connect more extensively with consumers. In addition, Nike plans to launch innovative new boots and engage in corporate responsibility and sustainability initiatives. The company has to do so in light of competition from archrival Adidas and the pressure of succeeding on the biggest stage in football, with billions of people around the world watching. The case allows students to analyze how a company can best integrate several value propositions into a cohesive plan and how it can best communicate with its chosen target market. It also allows for a rich discussion of the brand image the company needs to portray to leverage success beyond the World Cup event.

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Fiat-Chrysler Alliance: Launching the Cinquecento in North America

Gary P. Pisano, Phillip Andrews, and Alessandro Di Fiore
Harvard Business School Case 611-037

Fiat ended its 27-year absence in the North American automobile market when the first Cinquecento (500)-a very small, iconic Italian car that had strong sales in Europe-was delivered on March 10, 2011. The Italian automaker re-entered the market through an alliance with Chrysler, the American automaker Fiat acquired in April 2009. For Laura Soave, Chrysler Group's head of Fiat Brand North America, the first delivery marked a watershed in a journey that began 12 months before when she first took responsibility for re-launching the Fiat brand in North America. As the first product of the Fiat-Chrysler alliance, the outcome of the Cinquecento launch would indicate how the integration of operations, and in particular the sharing of technology, platforms, components, manufacturing plants, and distribution networks, would drive the long-term health of both Fiat and Chrysler. This case looks at the various strategic and operational challenges Soave faced throughout the process.

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Hardina Smythe and the Healthcare Investment Conundrum

Matthew Rhodes-Kropf, Ann Leamon, and Lisa Strope
Harvard Business School Case 811-073

Hardina Smythe, a recent MBA graduate, has just joined a top-tier venture capital firm in the difficult environment of late 2010. Her first assignment is to evaluate three different deals and make recommendations to the partners. Each potential investment has strengths and drawbacks for both the firm and Hardina.

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Shell Nigeria: The WikiLeaks Cables

Sandra J. Sucher, Rebecca Henderson, and Matthew Preble
Harvard Business School Case 311-084

In November 2010, WikiLeaks began releasing the first of hundreds of thousands of U.S. diplomatic cables that it had obtained. Among the thousands of cables published by early 2011 were several that shed light on Royal Dutch Shell's operations in Nigeria and its relationship with the Nigerian government.

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