First Look

November 1, 2016

Among the highlights included in new research papers, case studies, articles, and books released this week by Harvard Business School faculty:

Luxury products that provide an alibi

Do we need a justification (or at least a cover story) to buy a luxury product? In the paper The Functional Alibi, researchers Anat Keinan and colleagues report that “adding a small utilitarian feature to a luxury product can serve as a functional alibi, justifying the indulgent purchase and reducing indulgence guilt.” The paper was published in the Journal of the Association for Consumer Research.

Selling a refrigerator to 80 percent of India

Some 80 percent of Indians lack access to refrigeration—a market opportunity that Clayton Christensen would love. Can a team develop an inexpensive unit that does the job without frills to serve a market with hundreds of millions of potential customers? The case study is titled chotuKool: 'Little Cool,' Big Opportunity, and was written by Rory McDonald, Derek van Bever and Efosa Ojomo.

Buying a product based on what’s next to it

In a forthcoming paper, Uma R. Karmarkar studies display sets: How groups of items are displayed to influence decision making. She examines whether a display of like items improves chances of a purchase. Her paper, The Impact of 'Display-Set' Options on Decision-Making, is scheduled to be published in the Journal of Behavioral Decision Making.

A complete list of new research and publications from Harvard Business School faculty follows.

— Sean Silverthorne
  • 2016
  • Random House

The Content Trap: A Strategist's Guide to Digital Change

By: Anand, Bharat

Abstract—Companies everywhere face two major challenges today: getting noticed and getting paid. To confront these obstacles, I examine a range of businesses around the world, from Chinese Internet giant Tencent to Scandinavian digital trailblazer Schibsted, from The New York Times to The Economist, and from talent management to the future of education. Synthesizing what these stories have in common, and drawing on the latest research in economics, marketing, and strategy, as well as conversations with key players from the frontlines of digital change, The Content Trap aims to reorient strategy and offers lessons for businesses, entrepreneurs, and individuals trying to figure out what to do next. Companies that flourish in a digital world have focused on establishing and fostering connections rather than creating the best content. Success comes not from making the "best" content, but from recognizing how content facilitates user connections; it comes not from protecting the value of content at all costs, but from unearthing related opportunities—product connections—close by; and it comes not from mimicking competitors' best practices, but from seeing functional connections—choices that are part of a connected whole.

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  • October 11, 2016
  • Proceedings of the National Academy of Sciences of the United States of America

Innovation Network

By: Acemoglu, Daron, Ufuk Akcigit, and William R. Kerr

Abstract— Technological progress builds upon itself, with the expansion of invention in one domain propelling future work in linked fields. Our analysis uses 1.8 million U.S. patents and their citation properties to map the innovation network and its strength. Past innovation network structures are calculated using citation patterns across technology classes during 1975 to 1994. The interaction of this preexisting network structure with patent growth in upstream technology fields has strong predictive power on future innovation after 1995. This pattern is consistent with the idea that when there is more past upstream innovation for a particular technology class to build on, then that technology class innovates more.

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  • In press
  • Journal of Behavioral Decision Making

The Impact of 'Display-Set' Options on Decision-Making

By: Karmarkar, Uma R.

Abstract—The way a choice set is constructed can have a significant influence on how individuals perceive and evaluate their options and make decisions between them. Here, I examine whether a “display set” of visible but unavailable options can exert these same types of influences on whether or not to choose a single (target) item. Across a series of experiments, purchase intent is increased when the display set and target are drawn from the same category but decreased when the display and target items are mismatched. This effect is shown to depend on perceived similarity, such that increasing display-target similarity increases purchase intent towards the target. Furthermore, contrary to the predictions made by previous neural and behavioral research on choice sets, the relative value and/or number of display-only items have no significant impact on these decisions. These findings reveal a novel choice behavior in commonly encountered settings such as online marketplaces.

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  • 2016
  • Online Luxury Retailing: Leveraging Digital Opportunities: Research, Industry Practice, and Open Questions

Luxury Branding Research: New Perspectives and Future Priorities

By: Keinan, Anat, Sandrine Crener-Ricard, and Silvia Bellezza

Abstract—Several major trends have changed the landscape for luxury brands. These shifts include the increasing role of technology (digital and mobile) as well as the use by consumers of alternative signals of status, such as wearing less prominently branded apparel, being less conformist (e.g., entering a luxury store in a casual outfit), consuming leisure time in a conspicuous way or, conversely, the flaunting of a busy life and a dearth of leisure time. In addition, people’s relative interest in buying luxury experiences versus luxury products is increasing. Technology has introduced new business models, such as collaborative consumption in a sharing economy (e.g., Onefinestay, Rent the Runway, Sentient Jet), and there is a more explicit focus on sustainability (e.g., Stella McCartney). Luxury brands need to consider the increasing global connectedness, particularly the importance of the Chinese market for luxury companies, as well as customers’ changing expectations for the brands. Companies can leverage storytelling to build their brands, and careful brand extensions can grow the business as long as they do not alienate core loyalists. Other potentially risky opportunities to weigh carefully are moving production from the original country of origin, letting the merchandise design be guided too much by customers’ wants and needs, using off-price distribution channels, and partnering with a mass merchant on a shared collection (e.g., Target and H&M collaborations).

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  • October 2016
  • Journal of the Association for Consumer Research

The Functional Alibi

By: Keinan, Anat, Ran Kivetz, and Oded Netzer

Abstract—Spending money on hedonic luxuries often seems wasteful, irrational, and even immoral. We propose that adding a small utilitarian feature to a luxury product can serve as a functional alibi, justifying the indulgent purchase and reducing indulgence guilt. We demonstrate that consumers tend to inflate the value, and usage frequency, of utilitarian features when they are attached to hedonic luxuries. Using a mixed-method approach, combining archival data (an analysis of over 1,000 online reviews of handbags) with studies conducted in the field and laboratory, we establish the functional alibi effect and show that it is mediated by guilt and more likely to occur when the luxury purchase is perceived as frivolous and expensive, and when the purchase is for oneself rather than a gift. We explore the effect of adding a functional alibi in a variety of marketing contexts, and we examine various consumer populations representing diverse demographics.

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  • Fall 2016
  • MIT Sloan Management Review

Harnessing the Best of Globalization

By: Kerr, William R.

Abstract—No abstract available.

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The Structure of Board Committees

By: Chen, Kevin D., and Andy Wu

Abstract—We document and analyze board committee structures utilizing a novel dataset containing full board committee membership for over 6,000 firms. Board committees provide benefits (specialization, efficiency, and accountability benefits) and costs (information segregation). Consistent with these benefits and costs, we find that committee activity increases with firm size, the proportion of outside directors, board tenure and size, and public information available to outside directors. Moreover, boards allocate directors in ways to alleviate information segregation through multi-committee directors. Specifically, multi-committee directors tend to serve on related committees and be outside directors with more expertise and experience. Also, busy directors are less likely to serve on multiple committees, possibly to avoid being overloaded.

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Cost of Experimentation and the Evolution of Venture Capital

By: Ewens, Michael, Ramana Nanda, and Matthew Rhodes-Kropf

Abstract—We study how technological shocks to the cost of starting new businesses have led the venture capital model to adapt in fundamental ways over the prior decade. We both document and provide a framework to understand the changes in the investment strategy of VCs in recent years—an increased prevalence of a “spray and pray" investment approach—where investors provide a little funding and limited governance to an increased number of startups that they are more likely to abandon, but where initial experiments significantly inform beliefs about the future potential of the venture. This adaptation and related entry by new financial intermediaries has led to a disproportionate rise in innovations where information on future prospects is revealed quickly and cheaply and has reduced the relative share of innovation in complex technologies where initial experiments cost more and reveal less.

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Abstract—When emerging market firms raise external capital, they face a tradeoff where greater transparency may lead to a lower cost of capital but at the cost of revealing proprietary information in their relational business practices. We find that firms overcome this challenge by relying on financial analysts within their private networks, who then transmit the information to arm’s length analysts outside the network. Specifically, we show that firms with more connected analysts have more accurate consensus forecasts and lower forecast dispersion. When a connected analyst departs and stops covering a firm, there is a decrease in the accuracy and informativeness of the unconnected (arm’s length) analysts’ forecasts, suggesting that the connected analyst’s knowledge spills over to those outside the private network. The spillover effect is stronger when firms have plans to access external capital or when the firms possess information that is proprietary or hard to verify (e.g., in times of political uncertainty). The findings suggest that managers’ private networks with financial analysts can have positive externalities for firms’ information environments.

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Abstract— Homo sapiens has mastered its environment so thoroughly that, for the first time in history, a small minority of the population is capable of creating enough food and fuels to support not only itself, but also a growing majority of the 6 billion people now living on earth. This unparalleled abundance is allowing our species to develop, distribute, and profit from innovation in nearly every corner of civilization. Now key elements of the modern world such as the speed and connectedness of digital communication, the dynamic movement of capital, and the changing nature of political boundaries are propelling capitalism into a new form that can be characterized as "virtual capitalism." And global corporations in their size and global influence are leading the embodiment of virtual capitalism into the modern world.

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  • Harvard Business School Case 717-418

Alphabet Eyes New Frontiers

In October 2015, Google restructured into Alphabet, a holding company, which analysts said would facilitate innovation among its diverse subsidiaries. But when news reports surfaced revealing struggles within Alphabet companies including Nest, the smart thermostat maker, observers began to wonder if the reorganization made sense after all.

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  • Harvard Business School Case 117-002

VMD Medical Imaging Center

VMD Medical Imaging Center, a local independent provider of medical imaging services, is facing some important challenges. Despite efficiency improvements and cost cutting initiatives carried out over the past few years, their profitability is shrinking; their prices are becoming uncompetitive; and their main customer, a large regional research and teaching hospital, is threatening to seek alternative, more cost-effective, suppliers. The case addresses a number of important challenges that firms typically face with respect to designing and maintaining their costing systems, including the need to keep the costing system in line with the business processes of the firm throughout its life cycle; the setting of transfer prices, which highlights the interdependencies between costing systems and pricing strategies; and the demand-induced death spiral, which is brought about by a shift in sales mix from labor intensive to technology intensive imaging services. In addition, this case offers an opportunity to develop the class discussion in multiple directions, at the discretion of the instructor, such as the role of costing systems in organizations, the relationship between costing and strategy, and the facilitating role of costing with respect to cross-functional coordination.

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  • Harvard Business School Case 317-022

Vitalia Franchise (B): Vitalia Brasil

This case should be distributed only after "Vitalia Franchise" (HBS Case No. 311-035) is distributed and discussed.

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  • Harvard Business School Case 315-045

CV Ingenuity (A)

A medical device startup seeks to complete its clinical trials with very little startup funding and a small staff when compared to its competitors.

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  • Harvard Business School Case 517-019

C.W. Dixey & Son

C.W. Dixey & Son is about to be relaunched as a luxury eyewear brand after a fifty-year absence from the marketplace. This case focuses on reviving a dormant brand with a 200-year plus heritage of innovation, craft excellence, and luxury. Drawing on extensive historical research, brand owner Dr. Simon Palmer believes that the brand’s authenticity is perfect for wealthy customers looking for refinement and inconspicuous luxury in an age of ostentatious logocentric branding. Drawing upon the brand’s extensive associations with previous users, most notably Sir Winston Churchill, Palmer is ready to relaunch the brand into a crowded market full of well-resourced luxury brand names with high brand awareness. Palmer needs to consider a range of positioning-driven decisions in order to ensure C.W. Dixey & Son is relaunched successfully.

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  • Harvard Business School Case 317-008

The case explores Hadi Partovi’s mission to provide every K-12 student in the United States the opportunity to learn computer science. Students can assess how Partovi transformed his passion into an organization that reached millions around the globe through the launch of not-for-profit and its well-known awareness building event entitled “The Hour of Code.” The case provides students the opportunity to consider the organization’s multifaceted approach, its team, and partnerships strategy. A particular focus is on the path taken by this relatively young social enterprise to address issues of scalability and sustainability.

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  • Harvard Business School Case 616-020

chotuKool: 'Little Cool,' Big Opportunity

In 2013, a team led by Gopalan Sunderraman, vice president of corporate development at Godrej & Boyce Mfg. Co. Ltd.—one of the companies owned by Godrej Group, a large Indian conglomerate—was preparing to launch an innovative low-cost refrigerator. Developed expressly for the approximately 80% of Indians who lacked access to refrigeration (a market Godrej had never before targeted), the chotuKool represented a technological marvel—a small, inexpensive thermoelectric appliance powered by a rechargeable battery. The case traces chotuKool’s development and evolution from an initial product concept inspired by theories of innovation and the strategic vision of Jamshyd Godrej (managing director and chairman at Godrej & Boyce Mfg.) to a promising new line of business that emerged from a process of learning and discovery through market feedback. As the company geared up for the broader rollout of chotuKool, Sunderraman and his team faced some tough questions. What was the proper target and scope for the launch? Which strategy gave them the best chance of success? Could chotuKool really redefine the company and bring refrigeration to hundreds of millions of Indians?

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  • Harvard Business School Case 717-420

Truly Human Leadership at Barry-Wehmiller

The chief executive of Barry-Wehmiller, a large maker of industrial equipment, has resolved to run the company via “truly human leadership” in which “success is measured by the way we touch the lives of people.” With unusual people practices and a distinctive strategy, the company has generated enviable financial results. During the Great Recession of 2007–2009, the company went to great lengths to avoid layoffs. But as the case opens in 2013, one division of the company faces a sharp downturn, and the head of the division must decide whether to let employees go. In light of Barry-Wehmiller’s people practices and strategy, what should he do?

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  • Harvard Business School Case 817-010

Entrepreneurial Sales and Marketing Vignettes

Which sales candidate is a startup’s ideal first hire? What marketing channels are best to invest in? How aggressively should an executive team align sales with customer success? Early stage founders, sales leaders, and marketing executives often face one, and sometimes all, of the above scenarios as they grow their ventures. This case presents three short vignettes, with three fictitious organizations, to facilitate a discussion around these important decisions.

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  • Harvard Business School Case 817-009

eSig: Conversion Funnel Analysis

eSig, an early-stage startup, offers an electronic signature application as a "freemium" product, i.e., users can upgrade from a free basic version to a premium version by paying a subscription fee. Using 9 months of data from 50,000 user activations (available as a case supplement), students are asked to project the number of new users eSig will acquire in Q1 2016 and recommend how much they should spend during the quarter on each major marketing channel (e.g., Facebook ads, Google ads, content marketing, etc.). Note: the name and functionality of the actual freemium application upon which the case is based have been disguised.

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  • Harvard Business School Case 716-026

The TTIP: Bridging the Transatlantic Economy

In 2016, the United States and the European Union struggled to reach an agreement over the Transatlantic Trade and Investment Partnership (TTIP). Started in June 2013, TTIP negotiations had gone on much longer than anyone had expected. With elections coming on both sides of the Atlantic and a rising opposition in public opinion, what were the odds that such a comprehensive trade agreement would see the light? How would TTIP change the rules of world trade? Who would benefit and who would lose if an agreement were finally reached?

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  • Harvard Business School Case 717-417

eBay vs. Carl Icahn, 2014

This case explores Carl Icahn's attack on eBay, starting in January 2014. The case examines how John Donahoe, CEO of eBay, should respond to Icahn's demand that eBay spin off PayPal and accept Icahn's two nominees to the board of directors.

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