First Look

May 13, 2014

Making 'freemium' Work

In the May issue of Harvard Business Review, Vineet Kumar discusses the challenges startups face in following a "freemium" business model, where basic features are provided for free but others offered at a price. The article discusses marketing strategy, the life cycle of upgrades in freemium companies, and six questions that new enterprises need to answer.

Should Taxpayers Have A Say On How Their Money Is Spent?

Tax compliance increases significantly—by 16 percent—when taxpayers are allowed to express nonbinding preferences on spending priorities, according to recent research by Michael I. Norton and colleagues. "Providing taxpayer agency recouples tax payments with the public services obtained in return, reduces general anti-tax sentiment, and holds satisfaction with tax payment stable despite increased compliance with tax dues," according to the researchers.

Selecting The Best Board Candidate

In the lead story in the current issue of Directors & Boards, Blythe McGarvie writes on what boards need to ask in order to hire the best board members. "You want candidates who meet the requirements of cultural fit, the right skill set, and meaningful diversity," according to the article, ''Dynamics of the Board Interview.''

— Sean Silverthorne


  • August 2013
  • Harvard Business Review

From Purpose to Impact: Figure Out Your Passion and Put It to Work

By: Craig, Nick, and Scott Snook

Abstract—We offer opinions on leadership. A need is seen for executives to have a strong belief in the purpose of their lives as individuals and within an organization to be effective leaders and to accomplish their personal goals. Executives are urged to examine their lives to discover major themes, interests, and values, using that examination to create a short statement of individual purpose which is then used to create a plan for using that purpose to create an impact on their organizations and the leader's own self-actualization.

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  • August 2013
  • Harvard Business Review

How to Outsmart Activist Investors

By: George, Bill, and Jay W. Lorsch

Abstract—We offer opinions on how management and corporate boards of directors can best manage investor relations with activist stockholders such as hedge funds who are demanding major changes within a corporation to improve stockholder return. Beverage industry firm PepsiCo is cited in support of the contention that creating and maintaining a long-term strategic plan is of value in thwarting such investors. Executives and directors are advised to analyze their corporations from the point of view of an activist investor, to create harmony within the board of directors, and to measure performance against specific and publicly stated goals.

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Abstract—The article discusses the "freemium" business model, which is used by some Internet businesses and smartphone application developers to give users free basic features of a digital product and access to premium functionality for a subscription fee. The discussion topics include the freemium marketing strategy, the life cycle of upgrades in freemium companies, and the six questions that new business enterprises should explore when considering the freemium model. The article mentions how four companies including newspaper and Dropbox cloud storage use the freemium model.

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  • August 2013
  • Directors & Boards

Dynamics of the Board Interview

By: McGarvie, Blythe

Abstract—You want candidates who meet the requirements of cultural fit, the right skill set, and meaningful diversity. No one expects the candidate to know everything about the company during the interview process. Research shows that companies with more women on their boards have higher return on sales, higher return on invested capital, and higher return on equity. This article explains what boards need to ask to obtain the best board members.

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Working Papers

Principals and Their Car Dealers: What Do Targets Tell About Their Relation?

By: Bouwens, Jan, Eddy Cardinaels, and Jingwen Zhang

Abstract—In this study we describe target setting and target achievements for a car dealership. Car dealers are eligible for a discount on the purchase price conditional on their achieving the sales targets set by the franchisor. We show that car dealers (franchisees) who exclusively deal in cars of the brand offered by the franchisor receive easier targets and are more likely to exert effort in achieving their targets compared to dealers who also acquire brands outside of the franchise network. As a consequence the exclusive dealers receive a relatively bigger cut of the total amount of discounts that dealers are offered conditional on their achieving sales targets set by the franchisor. We explain these results in terms of how much franchisors and franchisees believe that their relations will last or will be intensified in the future. We leverage on relational-contracts theory to develop our predictions and interpret our findings.

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Abstract—To create social ties to support their professional or personal goals, people actively engage in instrumental networking. Drawing from moral psychology research, we posit that this intentional behavior has unintended consequences for an individual's morality. Unlike personal networking in pursuit of emotional support or friendship, and unlike social ties that emerge spontaneously, instrumental networking in pursuit of professional goals can impinge on an individual's moral purity-a psychological state that results from viewing the self as clean from a moral standpoint-and make an individual feel dirty. We theorize that such feelings of dirtiness decrease the frequency of instrumental networking and, as a result, work performance. We also examine sources of variability in networking-induced feelings of dirtiness by proposing that the amount of power people have when they engage in instrumental networking influences how dirty this networking makes them feel. Three laboratory experiments and a survey study of lawyers in a large North American law firm provide support for our predictions. We call for a new direction in network research that investigates how network-related behaviors associated with building social capital influence individuals' psychological experiences and work outcomes.

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Eliciting Taxpayer Preferences Increases Tax Compliance

By: Lamberton, Cait, Jan-Emmanuel De Neve, and Michael I. Norton

Abstract—Two experiments show that eliciting taxpayer preferences on government spending―providing taxpayer agency―increases tax compliance. We first create an income and taxation environment in a laboratory setting to test for compliance with a "lab tax." Allowing a treatment group to express non-binding preferences over tax spending priorities leads to a 16% increase in tax compliance. A follow-up online study tests this treatment with a simulation of paying U.S. federal taxes. Allowing taxpayers to signal their preferences on the distribution of government spending results in a 15% reduction in the stated take-up rate of a questionable tax loophole. Providing taxpayer agency recouples tax payments with the public services obtained in return, reduces general anti-tax sentiment, and holds satisfaction with tax payment stable despite increased compliance with tax dues. With tax noncompliance costing the U.S. government $385 billion annually, providing taxpayer agency could have meaningful economic impact. At the same time, giving taxpayers a voice may act as a two-way "nudge," transforming tax payment from a passive experience to a channel of communication between taxpayers and government.

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Cases & Course Materials

Entrepreneurial Finance Lab provides credit-scoring services in developing countries using psychometric assessment, but the potential loss of a large customer makes them reconsider their scaling narrative.

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  • Harvard Business School Case 514-066

Reinventing Adobe

By 2013, Adobe had reinvented itself from a publisher of popular software such as Photoshop and Acrobat to a digital marketing and digital media company. In May 2013, the company decided to stop selling its software as a package in favor of Creative Cloud where consumers paid a monthly subscription fee. Within a few weeks thousands of consumers signed petition complaining against this decision. Should Adobe reverse its decision? More generally, what new skills and capabilities does it need to develop as it reinvents itself?

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  • Harvard Business School Case 812-001

Coco Chanel: Creating Fashion for the Modern Woman (A)

Chanel, the iconic haute couture house, founded by Gabrielle "Coco" Chanel in 1913, came to embody its founder's philosophy, taste, and style and set a distinctive and influential tone for women's fashion. Coming to prominence during the height of cultural modernity in the 1920s and 1930s, Chanel's designs wrapped high and low cultural references into beautiful yet practical clothing and jewelry for women of Europe and the Americas. In their articulation of clean, classic lines, her designs set a standard for women's fashion and clothing, relevant from 1910 through to the 1960s. She created several iconic but understated staples of many women's wardrobes, such as her signature cardigan and suit, the quilted handbag with a chain-link strap, which left its wearer's hands free, and "the little black dress," all of which continue to be part of women's wardrobes today in some shape and form. Chanel died in 1971 leaving the future of the brand and its leadership uncertain.

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The mining giant Anglo American attempts to differentiate itself through its social performance, yet public expectations are still growing. Maintaining a "social license" to operate was increasingly challenging and critical to business success. The case considers Anglo American's options to stay in front of these trends. How can the protagonist promote greater professionalization of social performance inside the organization and greater integration with business decisions? The organization was also under pressure to increase social investments as part of the company's social license. Could significantly more value-for the company, host governments, and local communities-be created by leveraging the company's core operations, such as increasing the amount of goods and services purchased from local suppliers?

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  • Harvard Business School Case 414-056

Fei Cheng Wu Rao

As Fei Cheng Wu Rao, China's most popular entertainment program, enters its fourth year, company leaders grapple with questions of how to keep the show fresh and reach new markets. In particular, the show is poised to expand to Africa, yet there are significant questions about how to tailor a program designed to capture the attention of a unique demographic within China to new cultural contexts.

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In response to growing concern about childhood obesity, in February 2006 the Council of Better Business Bureaus (CBBB) announced an initiative to examine its self-regulatory program on children's advertising. The existing program was a voluntary cross-industry program that monitored advertisements directed to children. However, the program did not stipulate which products companies could or could not advertise to children. In response to calls for action on childhood obesity, the CBBB was considering a number of approaches, including revising children's advertising guidelines but staying within the basic parameters of the current program. Alternatively, the CBBB was considering launching a new self-regulatory program in which participating firms would constrain the amount of their children-targeted advertising of less-nutritious products. It was widely believed that children's food advertising was a major contributor to childhood obesity, and within the food-advertising category, considerable attention was directed to advertisements of children's presweetened cereals. The major ready-to-eat (RTE) cereal manufacturers, such as Kellogg's and General Mills, were supporters of the CBBB self-regulation programs and were invited to participate in the CBBB initiative. Each manufacturer had been taking different individual approaches to address the concerns of childhood obesity. The case discussion focuses on what actions General Mills should take with respect to the CBBB initiative and on its own.

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  • Harvard Business School Case 714-471

Martini Klinik: Prostate Cancer Care

Since its establishment in 2005, Hamburg's Martini Klinik had single mindedly focused on prostate cancer care with a commitment to measure long-term health outcomes for every patient. A wholly owned subsidiary of the Hamburg University Hospital, Martini was a "hospital in a hospital" in close proximity to other hospital departments and services. By 2013, Martini Klinik had become the largest prostate cancer treatment program in the world with 5,000 outpatient cases and more than 2,200 surgical cases annually, with patients coming from all over Germany and from other countries. However, German private insurers were cutting reimbursement for prostate cancer by 15% and denying extra payment for some new procedures, while reimbursement by public health plans was not covering costs. Dr. Hartwig Huland, Martini's founder and Medical Director, was considering how to respond.

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  • Harvard Business School Case 314-088

Advising Families on Estate Planning

Sean Warrick is an estate planning adviser at Hellwig & Macon. He is preparing for meetings with two clients. His first clients are Peggy and David Bartley, a professional married couple of moderate wealth. His second clients are Ray and Michelle Polanski, a couple that married late in life and had highly asymmetrical wealth and age. In the case, Warrick is reading a report written by Peter Sullivan, a top estate planning adviser, which considers how estate planning strategies might need to change due to recent changes in estate tax law. Specifically, Warrick must decide whether each couple should continue with their preexisting estate planning strategy, whether they should modify this strategy somewhat, or whether they should abandon their current strategy entirely.

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In January 2014, Gary Bald, senior vice president of Safety, Environment, and Health at Royal Caribbean Cruise Lines (RCL), prepared for a review meeting with the company's chief executive, Adam Goldstein, and chairman, Richard Fain. Prior to joining RCL in 2006, Bald had spent 28 years with the Federal Bureau of Investigation. After seven years of upgrading security for the cruise line, Bald stated, "We've come a long way, but what keeps me up at night is what I don't know." As he prepared for his meeting with Fain and Goldstein, Bald considered whether his department's current initiatives would be sufficient to maintain RCL's position at the cutting edge of cruise industry best practice and whether RCL could and should differentiate itself in marketing from its competitors in the areas of safety, environment, and health.

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  • Harvard Business School Case 614-056

BGI: Data-driven Research

BGI has the largest installed gene-sequencing capacity in the world, and to Zhang Gengyun, general manager of the Life Sciences Division, this represented an opportunity to apply his training as a plant breeder and his early career work as a biochemist to improving important parts of the world food supply. But his biggest challenge was in scaling up his organization to address the multitude of opportunities he wanted to address. Along with its massive investments in gene sequencing machines and computing resources for data analysis, BGI had built a large cadre of data scientists who could develop and run programs to sift through the mountains of genetic data that were being generated every day. But the approach raised other questions. Could people trained in traditional fields of botany, biochemistry, and animal husbandry simply use the BGI sequencing platform as a black box, much as people in other industries relied on specialization and a modular division of labor? Or did it take the kind of cross-training and cross-boundary work in which Zhang himself had invested two decades of his professional career? Could the data scientists in BGI's "factory" grow sufficiently to understand the science, and was that now even necessary?

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  • Harvard Business School Case 713-452

Troubles at Tesco, 2012

It was October 3, 2012, and all was not well at Tesco, the UK's largest supermarket chain with revenues of £64.5 billion ($104 billion). CEO Philip Clarke unveiled the first half-year profit drop in almost 20 years and, in the UK, the majors Asda and Sainsbury were closing the market-share gap, while niche players like hard discounter Aldi, with prices as much as 20% below Tesco's, and premium-grocer Waitrose were both growing fast. What did Clarke need to do to restore confidence and get Tesco back on track?

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