First Look

May 6, 2008

High-stakes decision-making in the presence of an audience can bring out the worst in leaders. As HBS professor Deepak Malhotra and colleagues write in the May issue of Harvard Business Review, competitive arousal—an "adrenaline-fueled emotional state" exacerbated by rivalry, time pressure, and being in the spotlight—can easily fly out of hand and wreck a potential deal.

Their article "When Winning Is Everything" explains what competitive arousal is and offers practical advice on how to mitigate the risk factors by defusing rivalry, reducing time pressure, and deflecting the spotlight. "Whenever competitive arousal can be anticipated—whether because of rivalry, time pressure, or the spotlight, or because all three are likely to emerge—mental preparation can be an important defense," the authors write.

Also this week, cases on the history of Apple's strategic moves; prediction markets at Google; and Sinopec, China's largest oil refiner.

— Martha Lagace

Working Papers

Highbrow Films Gather Dust: A Study of Dynamic Inconsistency and Online DVD Rentals


We report on a field study demonstrating systematic differences between the preferences people anticipate they will have over a series of options in the future and their subsequent revealed preferences over those options. Using a novel panel data set, we analyze the film rental and return patterns of a sample of online DVD rental customers over a period of four months. We predict and find that people are more likely to rent DVDs in one order and return them in the reverse order when should DVDs (e.g., documentaries) are rented before want DVDs (e.g., action films). This effect is sizeable in magnitude, with a 2% increase in the probability of a reversal in preferences (from a baseline rate of 12%) ensuing if the first of two sequentially rented movies has more should and fewer want characteristics than the second film. Similarly, we also predict and find that should DVDs are held significantly longer than want DVDs within-customer. Finally, we find that as the same customers gain more experience with online DVD rentals, their "dynamic inconsistency" is attenuated. We interpret our results as evidence that myopia has a meaningful impact on decisions in the field and that people learn about their myopia with experience, allowing them to curb its influence.

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Cases & Course Materials

Apple Inc., 2008

Harvard Business School Case 708-480

In January 2007, three decades after its incorporation, Apple Computer shed the second word in its name and became Apple Inc. With that move, the company signaled a fundamental shift away from its historic status as a vendor of the Macintosh personal computer (PC) line. Mac sales remained vital to Apple's future, but they now accounted for less than half of its total revenue. The company's line of iPod media players, its iTunes online content store and its newly launched iPhone mobile handset business made up increasingly large shares of its operations. In early 2008, on the strength of sky-rocketing sales in those areas and by resurgent sales of Macintosh products, Apple's revenues and its stock price reached record levels. The case explores the sustainability of Apple's current business model, one that positioned the company simultaneously in the PC industry and the consumer electronics industry. While Apple enjoyed a high market share in digital media players and in online music sales, it remained a niche player in the worldwide PC industry. The case examines the history of Apple's strategic moves under the leadership of CEOs Jobs, Sculley, Spindler, Amelio, and (again) Jobs; places those moves in the context of structural features of the evolving PC industry; and covers the iPod and iPhone businesses at considerable length.

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Cadbury Schweppes: Capturing Confectionery (A)

Harvard Business School Case 708-453

In late 2002, global confectionery and beverage maker Cadbury Schweppes needed to decide whether or not to make an acquisition bid for Adams, an underperforming gum company which had been put up for sale by pharmaceutical giant Pfizer. Examining the decision from a strategic perspective, the (A) case provides brief histories of the two companies; traces the global confectionery industry, focusing especially on chocolate and gum; and details the analysis of the merger decision. The (B) case explores the specific identified synergies in-depth and provides an opportunity to judge their viability. The (C) and (D) cases conclude the story and update the case with issues facing the global confectionery leader in 2008.

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Cadbury Schweppes: Capturing Confectionery (B)

Harvard Business School Supplement 708-454

Supplements the (A) case.

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Cadbury Schweppes: Capturing Confectionery (C)

Harvard Business School Supplement 708-455

Supplements the (A) case.

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Cadbury Schweppes: Capturing Confectionery (D)

Harvard Business School Supplement 708-491

Supplements the (A) case.

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Microsoft's Unlimited Potential

Harvard Business School Case 508-072

In April 2007, Bill Gates announced Microsoft Unlimited Potential. Its mission was to enable social and economic opportunity for the next five billion people. To deliver against this mission, Microsoft sought to focus its citizenship efforts and its product development efforts in developing markets. This case traces the development of Unlimited Potential on the citizenship side and the business operations side, raising the questions of whether Unlimited Potential is a robust strategy for the company and if so, how the company should organize and execute to achieve its mission.

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Prediction Markets at Google

Harvard Business School Case 607-088

In its eight quarters of operation, Google's internally developed prediction market has delivered accurate and decisive predictions about future events of interest to the company. Google must now determine how to increase participation in the market, and how to best use its predictions.

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Purolator Courier Ltd.

Harvard Business School Case 508-054

On a fall day in September 2003, Robert Swanborough made his way down a thickly carpeted hallway in Purolator's headquarters in Toronto, Canada, toward a meeting with his two deputies. Several months earlier, Swanborough, then vice-president of Marketing, had been named vice-president for Sales Effectiveness atop a transformed sales division. The previous week, the team had presented to top management the results of the customer segmentation research that Swanborough had contracted while in marketing. The research identified customers that would be willing to pay more for the services that Purolator was or could potentially provide to them.

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Sinopec: Refining Its Strategy

Harvard Business School Case 708-018

China's oil industry, with majority ownership vested in the government, had engaged in an "equity oil" strategy for the past few years—acquiring equity interests in oil producing nations including Sudan, Angola, and Iran. Outside critics, however, suggested that the Chinese companies could buy oil in the highly fungible global marketplace. But Sinopec, the nation's largest refiner, was one of the three companies (together with PetroChina and CNOOC) engaged in the equity oil play. With China's energy demands swelling—especially petroleum of which it had limited reserves—Sinopec was struggling to increase output rapidly enough to keep pace with the rapid growth of their automobile sector. And it had to make money soon.

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Vertex Pharmaceuticals and the Cystic Fibrosis Foundation: Venture Philanthropy Funding for Biotech

Harvard Business School Case 808-005

In 2001, Vertex Pharmaceuticals Incorporated acquired the San Diego-based biotech company, Aurora Biosciences. The combination of Vertex's and Aurora's technologies would improve the flow of novel drug candidates into development. However, several questions related to the integration of Aurora into Vertex were still unresolved, the most pressing being Aurora's major collaboration with the Cystic Fibrosis Foundation (CFF). Were venture philanthropy and foundation deals an appropriate funding mechanism for a public company like Vertex? How could the board of Vertex and the CFF fundamentally align the objectives of a for-profit company with those of a non-profit institution? Those were the questions faced by the Vertex executives.

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When Winning Is Everything


In the heat of competition, executives can easily become obsessed with beating their rivals. This adrenaline-fueled emotional state, which the authors call competitive arousal, often leads to bad decisions. Managers can minimize the potential for competitive arousal and the harm it can inflict by avoiding certain types of interaction and targeting the causes of a win-at-all-costs approach to decision making. Through an examination of companies such as Boston Scientific and Paramount, and through research on auctions, the authors identified three principal drivers of competitive arousal: intense rivalry, especially in the form of one-on-one competitions; time pressure, found in auctions and other bidding situations, for example; and being in the spotlight—that is, working in the presence of an audience. Individually, these factors can seriously impair managerial decision making; together, their consequences can be dire, as evidenced by many high-profile business disasters. It's not possible to avoid destructive competitions and bidding wars completely. But managers can help prevent competitive arousal by anticipating potentially harmful competitive dynamics and then restructuring the deal-making process. They can also stop irrational competitive behavior from escalating by addressing the causes of competitive arousal. When rivalry is intense, for instance, managers can limit the roles of those who feel it most. They can reduce time pressure by extending or eliminating arbitrary deadlines. And they can deflect the spotlight by spreading the responsibility for critical competitive decisions among team members. Decision makers will be most successful when they focus on winning contests in which they have a real advantage—and take a step back from those in which winning exacts too high a cost.

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