First Look

June 8, 2010

Projects in microfinance and social entrepreneurship are proving increasingly important forces for transforming economic and social conditions around the globe. They are also rich phenomena for scholarly research into what works, what doesn't, and why. The forthcoming book Scaling Social Impact: New Thinking, which includes a chapter coauthored by HBS professor Srikant Datar, examines in depth a variety of initiatives, alliances, methodologies, and success stories. Datar's chapter is titled "Enamored with Scale: Scaling with Limited Impact in the Microfinance Industry." Associate Professor Belen Villalonga, who specializes in corporate finance, corporate governance, and strategy, debuts four coauthored working papers this week, available for download. Among them is a study of family-owned companies in China, "The Role of Institutional Development in the Prevalence and Value of Family Firms" [PDF]. Comparing ownership data from nearly 1,500 publicly listed firms on the Chinese stock market, Villalonga and co-researchers examined the prevalence and value of family firms in relation to cultural norms. Among their findings: "Family firms do not inhibit growth and development, as is sometimes argued." This seems clear due to "the relatively higher prevalence of firms even in regions with high institutional efficiency." Cases this week examine, President Obama's initiative to make available government data online (""); the long-term strategy of mobile applications for banking ("Bank of America: Mobile Banking"; and the complexities of a venture capital model for providing grants to artists ("Creative Capital: Sustaining the Arts"), among other topics.
— Martha Lagace


The New Science of Retailing: How Analytics Are Transforming the Supply Chain and Improving Performance


Retailers today are drowning in data but lacking in insight: They have huge volumes of information at their disposal. But they're unsure of how to sort through it and use it to make smart decisions. The result? They're struggling with profit-sapping supply chain problems including stock-outs, overstock, and discounting. It doesn't have to be that way. In The New Science of Retailing, supply chain experts Marshall Fisher and Ananth Raman explain how to use analytics to better manage your inventory for faster turns, fewer discounted offerings, and fatter profit margins. Featuring case studies of retailing exemplars from around the world, this practical new book shows you how to accomplish the following: mine your sales data to identify "homerun" products you're missing; reinvent your forecasting and pricing strategies; build end-to-end agility into your supply chain; establish incentives that align your supply chain partners behind shared objectives; and extract maximum value from technologies such as point-of-sale scanners and customer loyalty cards. Highly readable and compelling, The New Science of Retailing is your playbook for turning all that data into a wellspring for new profits and unprecedented efficiency.

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Different: Escaping the Competitive Herd


Every few years a book—through a combination of the author's unique voice, storytelling ability, spirit, and insight—simply breaks the mold. Youngme Moon's DIFFERENT is that kind of book, a book for "people who don't read business books...," a book that feels like an intimate conversation with a friend who has thought deeply about how the world works, and who inspires you to look at that world with new clarity. If there is one strain of conventional wisdom pervading every company in every industry, it is the importance of competing hard to differentiate yourself from the competition. And yet going head-to-head with the competition-with respect to features, product augmentations, and so on—has the perverse effect of making you just like everyone else. Youngme's message is simple: Get off the competitive treadmill that's taking you nowhere. Aspire to offer the world something that is meaningfully different—Different in a manner that is both fundamental and comprehensive. Along the way, this award-winning teacher and scholar draws on lessons from her research, her case studies on companies such as IKEA and Google, and her experiences in the classroom to weave stories of iconoclasm and nonconformity, of imagination and delight. The result is a breathtakingly astute deconstruction of the strange and wonderful culture in which we live and consume..., a take on differentiation unlike any other found in business today. DIFFERENT shows how to succeed in a world where conformity reigns... but exceptions rule. It is also a stirring reminder of something that we too often forget: That business is, at heart, a profoundly human endeavor... which means that an essential requirement for any businessperson—in any market, in any economy—is an acute sensitivity to what makes us all spin.

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Does Product Market Competition Lead Firms to Decentralize?


There is a widespread sense that over the last two decades firms have been decentralizing decisions to employees further down the managerial hierarchy. Economists have developed a range of theories to account for delegation, but there is less empirical evidence, especially across countries. This has limited the ability to understand the phenomenon of decentralization. To address the empirical lacuna, we have developed a research program to measure the internal organization of firms—including their decentralization decisions—across a large range of industries and countries.

Enamored with Scale: Scaling with Limited Impact in the Microfinance Industry

An abstract is unavailable at this time.

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How Concentrated Is the Advertising and Marketing Services Industry? Myth vs. Realty


We analyze changes in concentration levels in the U.S. advertising and marketing services industry using data from the U.S. Census Bureau's quinquennial Economic Census and the Service Annual Survey. These data, heretofore largely ignored, allow us to redress some of the measurement problems surrounding estimates found in the existing literature. Firm level concentration, as measured by the Herfindahl-Hirschman Index (HHI), varies across the sectors comprising the industry, but all are within the range generally considered as indicative of a competitive industry. The data available allowed HHI to be calculated for the period 1977-2002 in the case of advertising agencies and for 1997 and 2002 for the other industry sectors. At the holding-company level, the four largest organizations account for only about a quarter of the industry's total revenue, a share that changed little over the period 2002-2008, but one that is approximately half of estimates frequently cited in the trade press. The persistence of a diverse and relatively unconcentrated size structure appears quite consistent with other research on the underlying economics of this industry.

Culture Clash: The Costs and Benefits of Homogeneity


This paper develops an economic theory of the costs and benefits of corporate culture—in the sense of shared beliefs and values—in order to study the effects of 'culture clash' in mergers and acquisitions. I first use a simple analytical framework to show that shared beliefs lead to more delegation, less monitoring, higher utility (or satisfaction), higher execution effort (or motivation), faster coordination, less influence activities, and more communication, but also to less experimentation and less information collection. When two firms that are each internally homogenous but different from each other merge, the results translate to specific predictions on how the change in homogeneity will affect firm behavior. This paper's predictions can also serve more generally as a test for the theory of culture as shared beliefs.

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Working Papers

The Role of Institutional Development in the Prevalence and Value of Family Firms


We investigate the role played by institutional development in the prevalence and value of family firms, while controlling for the potential effect of cultural norms. China provides a good research lab since it combines great heterogeneity in institutional development across the Chinese provinces with homogeneity in cultural norms, law, and regulation. Using hand-collected data from publicly listed Chinese firms, we find that when institutional efficiency is low, family ownership and management increase value; however, family control in excess of ownership reduces value. When institutional efficiency is high, none of these effects are significant.

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Do Analysts Add Value? Evidence from Corporate Spinoffs


We investigate the information content and forecast accuracy of 1,793 analyst reports written around 62 spinoffs—a setting in which analysts' ability to inform investors is potentially very high. We find that analysts pay little attention to subsidiaries about to be spun off even though these subsidiaries constitute a significant part of the parent company operations. Moreover, while the level of detail in analyst research about parent companies is significantly related to EPS and price forecast accuracy, the same is not true for the subsidiaries. We establish that this "forgotten child" phenomenon is linked to a "neglected parent" effect, whereby inaccuracy in subsidiary earnings forecasts is associated with inaccuracy in parent estimates. We conclude by showing that spinoffs may be a particularly complex setting for analysts to evaluate relative to other forms of corporate restructuring, such as IPOs, mergers, or bankruptcies, providing one potential explanation for our findings.

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Does Diversification Create Value in the Presence of External Financing Constraints? Evidence from the 2008-2009 Financial Crisis


We examine whether and why the value of diversification changed during the 2008-2009 financial crisis. We find that diversified firms increased in value relative to single-segment firms during the crisis, a result that is not driven by the endogeneity of either financing constraints or firms' diversification choices. We also find that the increase did not simply reflect changes in investor perceptions but real differences in corporate finance and investment through two different channels: a "more money" effect arising from the debt coinsurance feature of conglomerates and a "smarter money" effect arising from more efficient internal capital allocation.

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Corporate Governance and Internal Capital Markets


We exploit an exogenous shock to corporate ownership structures created by a recent tax reform in Germany to explore the link between corporate governance and internal capital markets. We find that firms with more concentrated ownership are less diversified and have more efficient internal capital markets. Our findings provide direct evidence in support of Scharfstein and Stein's (2000) model, which suggests that internal capital misallocations are partly a result of poor corporate governance. We also provide evidence of a channel through which the benefits of ownership concentration outweigh its costs.

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Cases & Course Materials

Bank of America: Mobile Banking

Sunil Gupta and Kerry Herman
Harvard Business School Case 510-063

In January 2010, Jen McDonald, head of Bank of America Corporation's (BAC) Digital Marketing group, was discussing the bank's mobile strategy with Douglas Brown, senior vice president, Mobile Product Development. BAC launched mobile banking in 2007 and within three years it had four million active customers. This success prompted line-of-business managers to request that Jen and Doug include more functionality in the bank's mobile app that was specific to its businesses, such as credit cards and mortgages. Jen and Doug had to decide how to leverage the mobile platform for the bank's various businesses without creating confusion or increasing complexity for the consumers. Recognizing the potential impact mobile technology could have on the entire banking industry, they also had to decide on how to position BAC's mobile banking in the long run.

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Creative Capital: Sustaining the Arts

G. Felda Hardymon and Ann Leamon
Harvard Business School Case 810-098

Creative Capital provides grants to individual artists using a venture capital model—the money comes with guidance and governance. Artists receive money as milestones are reached and also receive guidance on managing their lives and business to increase their sustainability. But as Ruby Lerner, CEO of Creative Capital, looks to the organization's next decade, how can she ensure the sustainability of this high-touch, uniquely individual model?

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Systems Infrastructure at Google (A)

Linda A. Hill and Emily A. Stecker
Harvard Business School Case 410-110

This case describes how a senior vice president of engineering at Google, Bill Coughran, leads a high-performing engineering organization. The case focuses specifically on Coughran's encouraging two teams of engineers to develop competing solutions for application storage systems. It also shows how Coughran assembled an informal brain trust of managers and technical leaders that assist him in leading his 2,000-person organization. This case will be relevant for those interested in what it takes to lead for sustained innovation, particularly of knowledge workers like engineers. It also sheds light on how to develop leaders in engineering organizations.

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Mirae Asset: Korea's Mutual Fund Pioneer

Mukti Khaire, Michael Shih-Ta Chen, and G.A. Donovan
Harvard Business School Case 810-123

Park Hyeon-Joo, the founder and chairman of Korea's earliest and largest mutual fund company, plans to expand internationally. After first offering emerging market funds to its Korean customers, the company then began selling local-currency funds in India and Brazil. Now Hyeon-Joo has to decide his next steps. Should he build on his emerging market expertise and focus his business expansion in developing countries? If so, where should he concentrate his efforts—India, Brazil, China, or other countries? Or should he instead focus on expanding into developed markets through operations in New York and London?

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Myelin Repair Foundation: Accelerating Drug Discovery Through Collaboration

Karim R. Lakhani and Paul R. Carlile
Harvard Business School Case 610-074

This case presents the Myelin Repair Foundation's accelerated research collaboration model for drug discovery. It highlights the challenges of building a multi-disciplinary and multi-institutional research collaboration that is attempting to create a treatment for multiple sclerosis (MS) based on a novel scientific approach. The case provides details on how norms of academic research and intellectual property had to be updated to enable collaboration. The current dilemma facing the CEO and COO of the foundation relates to setting strategic priorities for research so that a treatment for MS can be ready in the next ten years. The strategic choices need to account for the complexities of drug discovery, the uncertainty of commercial partners' interest in the therapeutic approach, and the constrained donor-based fundraising environment.

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Karim R. Lakhani, Robert D. Austin, and Yumi Yi
Harvard Business School Case 610-075

This case presents the logic and execution underlying the launch of, an instantiation of President Obama's initiative for transparency and open government. The process used by Vivek Kundra, the federal CIO, and his team to rapidly develop the Web site and to make available high-value data sets for reuse is highlighted. The case recounts Kundra's experience at the state and local government levels in developing open data initiatives and the application of that experience to the federal government. The case demonstrates the benefits of making government data available in terms of both engaged citizens and the potential for new innovations from the private sector. Potential drawbacks of open access including security and privacy issues are illustrated. Issues related to the role of government in releasing data and the balance between accountability and private-sector innovation are explored.

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Bardhaman (A): Shrachi and the West Bengal Housing Board

John D. Macomber and Viraal Balsari
Harvard Business School Case 210-062

A real estate developer decides whether to enter into a public-private partnership with the government of West Bengal to develop a township on farmland. The decisions include whether to expand operations from the company's base in Kolkata to Bardhaman, 100 km away; whether to subdivide and sell raw land lots or follow the developer's vision and build a planned township; whether to enter into a public-private partnership with the government of West Bengal, led by the Left Front and the Communist Party of India as equity partners; or whether to also accept a private equity firm into the project, what to build, and in what sequence.

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Bardhaman (B): Bengal Shrachi and the Township Design Decision

John D. Macomber and Viraal Balsari
Harvard Business School Supplement 210-063

A real estate developer in West Bengal chooses between two master plans for a 260-acre new township considering design, financing, and phasing. Two detailed master plans are considered, one with a radial design and an internal town square and one with a grid design and internal focus on parks and water features. The designs have different revenue potential, different cost implications, and different phasing decisions. The analysis includes soft issues and aesthetic issues such as what contributes to the feel of a place and what contributes to various land uses supporting each other (retail, residential, office). The analysis also includes a detailed proforma for each plan. This case builds on "Bardhaman (A): Shrachi and the West Bengal Housing Board."

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David A. Moss, Cole Bolton, and Andrew Novo
Harvard Business School Case 710-059

In the summer of 1931, Germany was struggling with a deepening economic crisis. Production had fallen, unemployment was high, and bank deposits and gold were being withdrawn from the country at a rapid pace, threatening the value of the German mark. The country's third largest bank, the Danatbank, was especially hard hit by the flagging economy and the flight of capital. By July, the Danatbank was on the verge of collapse, and the bank's charismatic and controversial senior partner, Jakob Goldschmidt, appealed personally to the government, the central bank, and his private banking rivals for a lifeline.

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Highland District County Hospital: Gastroenterology Care in Sweden

Michael E. Porter, Jennifer F. Baron, and Martin Rejler
Harvard Business School Case 710-469

Sweden's Highland District County Hospital, similar to a community hospital in the U.S., undertook a major restructuring to integrate care delivery for medical conditions served by the Department of Medicine. Each subspecialty within the department would form a single, co-located unit with its own budget that encompassed both inpatient and outpatient care. This case examines the experience of the Highland Gastroenterology Unit, comparing the delivery model for inflammatory bowel disease in 2001 and 2009, before and after the reorganization. The case can be used to examine health care provider strategy, integrated care delivery, and quality measurement. The case also profiles Sweden's single-payer health care system, allowing for a discussion of national health systems and health policy.

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CEIBS: A Global Business School Made in China

John A. Quelch, S. Rama Velamuri, and Shengjun Liu
Harvard Business School Case 510-088

President Zhu Xiaoming, Executive President Pedro Nueno, Dean Rolf D. Cremer, and Co-Dean Zhang Weijiong, of the China Europe International Business School (CEIBS), were sitting in the boardroom of the Shanghai campus in February 2009. They made up the management committee (MC) of the school and were preparing for a press conference to announce that the CEIBS MBA program had been ranked 8th in the world and 1st in Asia in the 2009 Financial Times Global MBA Rankings. This was the first time the program had been ranked in the world's top 10, a remarkable achievement considering that CEIBS had been founded just 15 years ago.

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Federal Bureau of Investigation, 2007

Jan W. Rivkin, Michael A. Roberto, and Ranjay Gulati
Harvard Business School Case 710-451

In the wake of the 9/11 terrorist attacks, Robert Mueller, the Director of the Federal Bureau of Investigation (FBI), sought to transform the storied Bureau. The FBI had long served as both the chief law enforcement agency and the main domestic intelligence wing of the U.S. government. In practice, though, law enforcement had overshadowed intelligence at the FBI. The terrorist attacks made it tragically clear that the United States required a much stronger domestic intelligence service, and Mueller believed that that service should reside within the FBI. Critics, however, called for the Bureau to narrow its scope, focus on law enforcement, and cede domestic intelligence to a new, specialized agency. Should the FBI retain both the law enforcement mission and the domestic intelligence mission? If so, how should it change itself to succeed in both missions? This case, a supplement to the "Federal Bureau of Investigation, 2001 (Abridged)" case (710-450), reviews the FBI's progress from 2001 to 2007.

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Federal Bureau of Investigation, 2009

Jan W. Rivkin, Michael A. Roberto, and Ranjay Gulati
Harvard Business School Case 710-452

This case, a supplement to the "Federal Bureau of Investigation, 2001 (Abridged)" case (710-450) and the "Federal Bureau of Investigation, 2007" case (710-451), reviews the FBI's progress in its transformation effort from 2007 to 2009.

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